Credit Card Fees and Currency Concerns – Ask Alex – Travel Question Wednesdays

Ask Alex - Travel Question Q and A every Wednesday

This post is part of the Ask Alex, Travel Question Wednesdays weekly series. To see previous questions click here.  To submit your own; tweet it to @AlexBerger, ask it in a comment on this post or send it in by e-mail.

A quick introductory note – When I began authoring VirtualWayfarer in July of 2007 I never expected that I’d still be blogging on travel, adventures, study abroad and everything that goes with it nearly five years later.  Over the years I’ve had a lot of questions and luckily my friends, network, and more than a few random strangers have gone well out of their way to answer those questions. While I still find myself asking questions on a regular basis I’ve found that I can also pay it forward as a resource for friends, my readers, and strangers alike.  In an effort to share what I’ve learned from my various adventures I’ve launched Travel Question Wednesdays. I’ll be answering one reader-submitted question every week.  You are all encouraged to submit, and all past questions will be archived and available as a resource for readers of this blog. I’m going to take a very open approach to the topics I’ll cover, so feel free to ask me just about anything , just keep it somewhat travel related.

This week’s travel question is from Felice D. she asks,

Q. “Clarify the best way to get and spend other currency: credit union card? no exchange fee but processing fee? bank card? atm? pay with credit card? cash? and….how to recoup VAT sensibly”

A.p2 – I’ll start with your VAT (Value Added Tax) question first, as it’s the hardest to answer. Unfortunately, it’s not something I have a lot of experience with or have been able to find a good resource for. The way I travel most of my expenses are not eligible for VAT refunds. The process for claiming VAT also tends to vary widely from country to country and is dependent on the type of travel you’re doing. VAT for tourism and personal travel is different than VAT reclaim options for business travel. One of the best writeups I’ve found is tailored to Italy but should offer insights for reclaiming VAT in most places. Head on over and check out WhyGo Italy’s “How to get a VAT refund in Italy” post. On the flip side if you’re a business traveler one useful guide I tracked down is Deloitte’s European VAT refund guide 2011.  At the end of the day you’ll need to spend some time running a few web searches on the specific VAT policies of the country you’re visiting.  Consider how obnoxious the process is (eg: Italy) and how high the threshold is (eg: Denmark’s ~$50 minimum per shop). Also keep in mind the items that qualify for a VAT refund and if it makes sense to pursue.  In most cases you’ll probably find that it’s not worth the hassle.

A.p2 – Circling back to the first part of your question – there are a lot of different options for converting your cash to a foreign currency.  Which is right for you will depend heavily on the nature of your financial situation.  Different banks charge significantly different fees.  The fee structure also tends to vary between Checking/Savings and Credit Card accounts. I’ll answer these questions tailored to US bank accounts, but the advice will be similar for international readers as well.

When using a Credit Card abroad it is not uncommon for many users to get hit by 2-4 fees simultaneously.  For Checking/ATM withdrawals these usually come in the form of an ATM service charge for out of network use (as much as $6 per bank) and a currency exchange fee (often 3%). When using your Credit Card abroad many charge 3% per transaction, while many vendors will also charge a point of sale surplus charge of up to 3%.  Never use your Credit Card for a ATM cash advance abroad, only use your Checking/Savings cards at ATMs while traveling. Also, for fraud prevention reasons I suggest only using Credit Cards (not debit cards) for point of sale (non-ATM) purchases.  Despite how expensive the ATM/Credit Card combination is, it’s actually often the cheapest option and the one I prefer.

Luckily, if you’re smart about it you can cut many of these fees out. Unfortunately, it may require kicking your bank or existing credit card to the curb.  FlyerGuide maintains a fantastic list of different bank’s and their card fees. Different cards provided by each bank will also have different fees. For international travel CapitalOne has made a reputation for itself by waiving the 0% international transaction fee on its cards. This in turn has started a trend which is being duplicated by some of the other banks.  For low-fee, or waived-fee ATM use abroad, you’ll likely have to go to a Credit Union or carry a large balance in your accounts. While this can cut the fee, it can also limit where the card can be used, so do your research ahead of time.

I suggest avoiding the use of traveler’s checks. While they can still be useful in some limited situations, the general consensus within the community is that they’re typically far more hassle than they’re worth.

Similarly, avoid currency exchange booths whenever possible.  Not only do these tend to charge obnoxious fees, they also will give you extremely bad exchange rates.  It’s not uncommon to see people leave 6-10% of their cash value at the currency booth when using these vendors.  Regardless of the various promises they may make or claim.

Money wires tend to be extremely expensive.  Unless it’s an emergency you’ll want to avoid these wherever possible.  If absolutely necessary explore online services designed as disruptors such as PayPal and its competitors.

Another option is to purchase your currency before your trip. This can be done through your bank, or a third party and is usually relatively affordable. Unfortunately, it also creates a huge problem for travelers traveling over an extended period of time or with healthy travel budgets.  If you expect your trip’s cash based expenses to be more than $1,000 USD (which is probably conservative for most of you), keep in mind that you’ll be stuck carrying that money during your trip.  If you get robbed, lose a bag, or somehow are separated from that currency you’ve lost far more than the 3-5% max you might have paid using a carefully selected Debit/Credit Card combination. For this reason I almost never travel with more than $200-300 USD in local currency on me (and usually have far less on my person).

Ultimately the best approach will also depend on the region you’re visiting.  Keep in mind that different banks and card services (MasterCard, Visa, etc.) are accepted to varied degrees from country to country.  Similarly, your cash will go much further in some countries than it will in other’s requiring fewer ATM withdrawals.  The level of crime in a country is also a key factor when deciding how much money you should keep on your person.

Hopefully this helps you as you prepare for your next trip.  Did it lead to a more specific question?  Feel free to ask in a comment below.

Please keep in mind that the above are general suggestions based on my personal experiences and research, not financial advice.  The material covered in this post is constantly changing, so make sure to do your own research using what I’ve shared as a foundation and a baseline to help you in the process.

Felice, thanks for a wonderful question!  To my readers – have a question of your own?  ASK IT!   Want to see previous questions? click here.


Frequent Flyer Credit Card Whoes

The Fjords, Norway

**UPDATE** – While still frustrated by the experience I had, I recently decided to give FF programs another go.  While I have continued to face frustrations with the process, booking and usage of my points, there is value there for those willing to play the game.  It is important, however, that you be prepared to play that game and do your research.

A few years ago I signed up for an Alaska Airlines Frequent Flyer Credit Card.  It seemed like a great idea.  After all, I fly internationally 2+ times a year, love travel, and put most of my expenses on my credit card. They were offering a 20,000 mile signing bonus which was solid at the time and a few additional perks including a large partner network. Unless something drastic changes I’ll never sign up for another frequent flyer card again.

It’s now 3 years later and I still have those 20,000 points. As well as another 18,000 or so I picked up before I stopped using the card out of frustration and transferred over to a Capital One cash back card. Each year as my December trip approaches I sit down and try and use my miles.  Each year I end up wasting 30-40 minutes on the phone before hanging up disgusted.

Let me tell you a bit about this year’s adventure.  I’m pretty flexible about where I want to visit.  My main criteria is time based.  My window this year starts on December 15th and ends on January 4th.  That means that I’m willing to depart December 15th-17th and return January 1st-4th.  In the grand scheme of things, that’s a far more flexible schedule than most people have. Also, I’m not overly picky about where I end up going.  A good deal in the general region I want to explore is usually good enough for me.

With nearly 2 months to go before my date of departure I called the Alaska Airlines Frequent Flyer Concierge service and got a very friendly associate. I gave her my dates and gave her a few countries – not cities, but entire countries – I was interested in while specifying I didn’t mind which city I ended up in.

We searched Peru without any luck.  Then Bolivia, Ecuador and Columbia. From there it was on to Argentina and Chile before adding Panama, Costa Rica, Puerto Rico, Aruba and the Netherlands Antilles.  You would think, given that she was searching all partner airlines with flights from Phoenix that at least ONE flight to at least ONE of these countries would have been available.  No such luck.

Annoyed but not overly surprised I groaned at the ridiculousness of it – after all – I’d essentially searched 2/3s of an entire continent and been unable to find so much as a single flight that would work.

So, I expanded my search to Asia. After all, there had to be at least some availability to somewhere. The search continued; Thailand?  Nope. Cambodia, Malaysia or the Philippines?  Nope.  Vietnam?  Another nope.

So…Asia was out. In a final act of desperation I figured I’d check two off-beat destinations in Europe I wouldn’t mind visiting – Greece and Turkey.  Want to guess the results of the queries?  You got it – nope, and nope!

So, I gave up.  She was apologetic and suggested I try to make my reservations further in advance in the future or considering upgrading to a business class ticket.  Apparently ~2 months isn’t enough lead time.  I’m sympathetic to the fact that December 14th-January 10th is a peak travel period…but seriously, with 2 months lead time, semi-flexible travel dates, searches across 3 continents and in 18 countries you can’t find me a SINGLE flight? That’s straight pigswill.

Oh, did I mention that for the privilege of being a Miles Rewards customer I get to pay a $75/year fee?   I’m sure there are a few people out there making these programs work for them, but if you’re an average consumer and you’re using a mileage plan, it’s a pretty safe bet you’re essentially being robbed.  Hell, did you know that the vast majority of “travel” cards still charge the exact same transaction fees as a normal credit card?

My advice for non-business travelers?  Tell em’ to go to hell, switch banks and pick up a Capital One cash back card that doesn’t have an annual fee, puts actual $ back in your account, and which doesn’t charge 3% on every purchase you make while abroad.  In the long run those are perks you’ll actually be able to use and which will leave you with real, tangible benefits no matter when you choose to travel.