Cash may not always be the best bet for much of your spending when traveling internationally. Carrying a wallet full of cash can be risky—if your wallet is stolen or lost, the chances of getting your money back are slim.
Using your debit or credit cards can be the safest and most cost-effective way to pay worldwide. It may take some planning ahead, though, to avoid fees. Whether you pay with a debit card or use a credit card, plan ahead so you don't end up paying more than necessary.
Before you travel, be sure to call the toll-free number on the back of your card and let the card issuer know where you’re traveling and the dates for each stop. Doing so will reduce the chance of your transactions being flagged as unusual and possibly declined.
Paying with local currency
Taking money out of an ATM in a foreign country typically incurs a fee from both the local bank that owns the ATM and your bank at home. So, researching when and how you will be charged fees can pay off. That's because some debit card providers don't charge fees for using foreign ATMs—and a few may even reimburse fees charged by the foreign bank. Planning withdrawals in advance can help you minimize any fees that could be charged.
"Try to plan your total local currency needs and withdraw the funds from an ATM in as few transactions as possible, so you reduce the foreign bank servicing fees," says Stefan Ross, vice president of credit card products at Fidelity.
Another more controversial option for making purchases when traveling is Dynamic Currency Conversion (DCC). With DCC, merchants or banks can process a transaction either in the customer’s home currency or the local currency where the transaction is taking place for an additional fee.
The service is often touted as a convenience to customers by allowing them to see exactly what they’re paying at the time of the transaction rather than having to wait for the charge to post online or show up in a monthly credit card statement, but many experts feel that it is simply another way for banks and merchants to charge additional fees to unsuspecting customers.
One common misconception is that DCC is a good way to get around paying the foreign transaction fees incurred by many credit and debit cards. Unfortunately, foreign transaction fees are charged based on foreign purchases as a whole, not purchases in a foreign currency.
Credit and debit card advantages
Credit and debit cards come with some advantages when traveling—you're protected against unauthorized charges by federal law in case your card is lost or stolen. The law limits your liability to $50 but many credit card issuers offer zero-liability protection.
Plus, purchases made with a credit card typically get a much better exchange rate than you can get from a currency exchange vendor or banks because your card issuer offers close to the best rate available as it’s set by the major networks, Visa® and Mastercard®.
Depending on the policies and features of your credit card, you may also pay a fee for the currency conversion. Credit card networks charge the fee to your bank and the cost is generally added to your purchase. Some credit card issuers will pay the currency conversion fee for you, so you may want to shop around for a new credit card before your trip.
There's another fee to look out for as well: the foreign transaction fee on purchases. The fee can be up to 3% of each purchase. That can add up. If you shop around ahead of time for a new card that offers a low foreign transaction fee (1%, for example) plus cash-back rewards, you could potentially come out ahead.
Card issuers boost security
EMV chips (EMV is short for Europay, Mastercard, Visa) have been used in Europe and many Asian countries for years, and have only recently become universal in the US. Using the chip for payment instead of swiping the card makes for a more secure transaction—and it's generally required if you plan to use your card while traveling.
Just as the US was adjusting to inserting chip cards instead of swiping, the next step in card technology has gained steam: contactless payments. Rather than inserting your card into the reader to pay, tapping your card on a sensor is all that's required. If your card shows a contactless symbol, 4 curved lines, you can start using it wherever contactless payments are accepted.
Contactless technology is already widespread in Canada, Australia, and the United Kingdom. Visa reports that more than 40% of in-store transactions outside of the US are contactless payments. Plus, 68% of brick-and-mortar retailers across the US can already accept contactless payments. The upside for consumers is that contactless cards have the lowest fraud rates of any type of payment.
"In Europe, bus or train ticket machines, gas pumps, and vending machines only accept chip cards because it's so much better at preventing fraud—and many now accept contactless payments," Ross notes. "If your card doesn't have a chip, call the number on the back of your card to request a card with chip technology."
Next steps to consider
Spending on your card can put money in your Fidelity account.
This account helps you save money in ways that a traditional bank can't.
Learn how to use credit cards safely and maximize their benefits.