Not too long ago, charging your way through a vacation abroad was de rigueur for cost-conscious travelers. That's because credit cards have more favorable exchange rates and fees than banks and exchange bureaus. Lately, though, new markups have made the charge-it strategy trickier.
Many credit-card issuers have tripled the charges for foreign billings. They've been quietly adding new fees for the past few years - so quietly that consumers have sued Visa, MasterCard and American Express, saying that markups were not properly disclosed. Card issuers are now starting to break out the extra charges on statements.
Despite the rising costs, credit cards remain the best way to pay when you're crossing borders - provided you bring the right ones and, of course, pay your bill off every month. An ATM card, too, can prove useful, as can traveler's checks for smaller purchases. With any payment method, however, there are costs. Here's how to keep them to a minimum:
¢ Pay with the right plastic. Most major credit-card issuers that have increased fees have added a 2 percent markup to Visa and MasterCard's 1 percent currency-conversion fee. You can avoid the 3 percent trap by using cards issued by the many small banks and credit unions that don't add markups. Another option is American Express, which charges a flat 2 percent. Discover Card charges no fees for foreign billings, but outside the United States it's only accepted in parts of Canada, the Caribbean and Mexico. Whichever card you use, avoid cash advances. Fees can exceed 5 percent, plus the interest rate may be higher than what you'd pay for regular credit-card purchases.
¢ Watch out for ATM fees. Debit cards offer easy access to cash through ATMs and the same good rates as credit cards, but you could get hit with charges as high as $5. (That happened to us when, one day in April, we made 30 euro transactions in Venice, Italy, using six different payment methods. The $5 ATM fee jacked our total cost in U.S. dollars up to $43.74 - cheaper than trading U.S. currency for euros at an exchange bureau, a bank, an airport or a hotel, but costlier than paying for a 30-euro purchase with a credit card.) Some smaller banks and credit unions offer no-fee foreign ATM use, although you'll likely pay Visa or MasterCard's 1 percent fee. The same goes for Citibank, as long as you use the bank's own ATMs around the world. With a Bank of America debit card, you'll get free access to its affiliates' ATMs in Mexico, Europe, Canada and Australia.
¢ Stored-value cards: Paying for safety. Stored-value cards are a safe alternative to debit cards because they're not linked to your bank, so they protect you from having personal accounts cleaned out by thieves. You can buy them from banks, credit-card companies, travel agents and AAA. But you'll pay up to $15 to buy the card and as much as $5 to reload it. ATM and currency-conversion fees also apply.
¢ Keep traveler's checks on hand. They don't offer the same good exchange rates as credit cards, but traveler's checks will do in a pinch - such as when ATMs and credit-card scanners are absent or out of commission. Just avoid exchanging them in hotels, which have the worst exchange rates and fees. (During our Venice experiment, trading dollars for 30 euros at a five-star hotel cost us $48.15 - 10 percent more than we paid to get the same amount of cash from an ATM using a debit card.) Instead, try local banks and shop around for good rates at exchange bureaus.
One last tip: Before leaving on your vacation, visit a homeland bank and order some of your destination country's currency. You might need it for cab fare to an ATM.
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