Banking overseas is more than just putting your card in an ATM. When you travel abroad, you want to avoid paying bank fees, foreign transaction charges, and get a good exchange rate. In fact, if you are on the road for a while, you want to have your money work for you. Banking when you travel requires thinking and a bit of planning. Here are some tips and trick I use to reduce my bank fees when I travel overseas:
There are a number of things you can do to reduce your ATM fees overseas.
The first thing you should do is set up a checking account at a major bank. ALWAYS PICK A MAJOR BANK! Why? Most major banks have partnership agreements with counterparts overseas that allow for free ATM withdrawals. While they have the highest fees ($5 USD per withdrawal), by using partner ATMs, you can avoid ATM charges.
Below is a list of major banks that have ATM partnerships with other global banks where you can avoid fees:
- Bank of America (United States)
- Barclays (England, Wales, Spain, Portugal, Gibraltar and certain countries in Africa)
- BNP Paribas (France, Ukraine)
- China Construction Bank (China)
- Deutsche Bank (Germany, Poland, Czech Republic, Spain, Portugal and Italy)
- Santander Serfin (Mexico)
- Scotiabank (Canada, Caribbean, Peru, Chile and Mexico)
- Westpac (Australia, New Zealand, Fiji, Vanuatu, Cook Islands, Samoa, Tonga, Papua New Guinea, and Solomon Islands)
- ABSA (South Africa)
- UkrSibbank (Ukraine)
Moreover, you can also pick a global bank that has branches around the world. I use HSBC for most of my international banking. HSBC has ATMs all over the world. Using those ATMs means I don’t have to pay those fees. As of September 2011, HSBC has raised their fee to $2.50 USD per ATM transaction when you use a non-HSBC ATM.
If you are a US resident the best bank to use is Charles Schwab. While Charles Schwab doesn’t have deals with any banks overseas like those mentioned above, it is one of the few banks that reimburses all your ATM fees at the end of each month. You will need to open a high yield checking account in order to qualify but there is no minimum deposit required and no monthly service fee. Charles Schwab not only reimburses its fees but also the fees of the other bank you used. You’ll never pay a fee with this bank. Their ATM card can be used in any bank machine around the world.
Moreover, as noted in the comments, many people have listed some banks and credit unions in the US, Canada, and Australia that offer no ATM fees. Consider reading the comment section and see if any of those banks can also be used by you. Reducing or forgoing international ATM fees on many types of accounts has become a popular offering by many banks these days.
ATM fees can really add up. Let’s think about it. If you’re traveling for a year, you will probably take out money from an ATM twice a week. Fees vary around the world but on average you end up paying $5 USD per withdrawal. That is $10 USD per week, $40 USD per month, or $520 USD per year. Even if you only use the ATM half the time, that’s still $260 USD per year. Most travelers I know go to the ATM even more than twice a week, which only increases the amount in fees they pay. Why give banks money you need for travel? You did a lot of work saving up your money, don’t waste it by giving it to a bank.
Note: Always have two bank accounts. It is good to have a backup in case one card is lost or stolen.
Making Money with Your Money
You have just saved an enormous amount of money for your trip. Don’t let it sit in a checking account where it will collect 0% interest. You have a pile of cash. Do something with it! While interest rates on savings and money market accounts are fairly low right now (1% or less), some extra money is better than none. Here are a few companies that offer good rates for US residents:
Note: I also use Bankrate which monitors interest rates from around the country.
Let’s say you saved $18,250 USD for your trip (that breaks down to $50 USD per day if anyone is counting). If you put your extra money into an online money market account, at 1% interest, you are GAINING $182.50 USD per year. Now, since you will be taking money out on a regular basis, I’d say a more realistic number is $120-130 USD.
By putting your money into one of these accounts, you can actually earn money while you travel. How much you earn will depend on how often you take money out and what you start with. $120 USD might not seem like it would make a big difference in traveling, but in some areas of the world, where you only need about $25 – 30 USD per day to survive, you are looking at close to an extra week of travel you wouldn’t have had otherwise, which makes $120 USD in free money sound a lot more appealing.
Note: Australia and New Zealand have high interest rates. If you are a resident of there, take advantage of those rates to make even more money while you travel overseas. Your money goes a lot further overseas than in your home country so you have the potential to earn even more.
Minimizing the Exchange Rate “Penalty”
Every time you use your card overseas, your local bank coverts the transaction into your local currency for billing purposes and they take a little off the top for doing so. Thus the official rate you see listed online is not what you get. You’ll never be able to fully avoid losses on the exchange rate unless you somehow use magic to turn your bank account into local currency everywhere you go. However, there are ways to reduce the amount you lose in conversion:
Use a Credit Card – Credit card companies get the best rates. Using a credit card will get you an exchange rate closest to the official rate. I use a credit card whenever possible. I find Capital One offers the rate closest to the official exchange rate.
The majority of credit cards charge a 3% fee when you use them overseas. However, there are a number of cards that offer no foreign transaction fees. Capital One No Hassle Card, Chase credit cards, and some American Express cards offer no transactions fees.
Use an ATM Card – ATM machines offer the best exchange rate after credit cards. They aren’t as good as credit cards since commercial banks take a little more off the top but it’s much better than exchanging cash. Money exchange offices offer the worst rates because they are so far down the food chain they lack the clout large financial institutions have and they usually charge a commission making exchanging cash the worst thing you can do.
Withdraw A Lot – If the exchange rate has moved in your favor (i.e. country X’s currency just fell against your country’s currency and you get 10 times more money), withdraw more than you need. That way when the exchange rate changes back you’ll have scored yourself some extra money with no added work. While living in Thailand in 2007, the Australian dollar collapsed to around 20 baht to the dollar. I ran to the bank and exchanged a lot of my Thai baht for $1,000 Aussie dollars since I was going there the following month. A week later, the Australian dollar recovered to 28 baht. In acting fast, I saved myself 8,000 baht, which is over $250 USD, giving me more money to use for my trip.
You’ll need to be comfortable carrying cash, though, and in a place where you can lock up extra cash in the hostel or hotel safe in order to ensure that it’s not lost or stolen.
I use the website http://www.xe.com to check exchange rates. If you have a smartphone like an iPhone, Blackberry, or Droid, the free currency app is also a good way to monitor rates. You can get the app from http://currencyapp.com/.
Don’t Change Money at Airports – As I said above, changing cash is the worst thing you can do. Unless I am stuck with cash I need to get rid of, I never change money. Most exchange bureaus are so far down the financial food chain they don’t have the clout to offer good exchange rates. Moreover, non-banks charge especially high commission and fees for exchanging money and if they don’t have one, they make their money by giving you an even lower exchange rate. Simply put, unless you have to, never exchange cash – whether that is at an airport or in the middle of town. Cash is not king. Avoid using Travelex too as they have the most awful rates and fees.
Get Travel Rewards
Travel credit cards are crucial to reducing your costs and making your life easier. These credit cards can get you free stuff, cheap flights, and money. There are many travel credit cards out there that offer different kinds of rewards, from general points programs to hotel and airline cards. You probably already use a credit card, so if you like to travel, you should consider getting this type of credit card.
Most travel credit cards offer bonuses of 30,000 points/miles for signing up. I use a Citi AAdvantage card because I belong to their frequent flier program. By getting free stuff, you can reduce your overall expenses. A free flight is worth more than the fees you may pay. Cashback can help cover the cost of the fees. I put everything on my card and last year I only spent $300 USD on fees but that was well below the free flight I got to Europe and the nights at the Hilton. In the end, I saved money.
Below are some sites where you can find good travel credit cards:
Read how I’ve used these cards to get free business class tickets.
Bank fees can add up to some serious money over the course of a long trip. If you want to save money, you need to be proactive when it comes to banking and currency exchanges. I see too many travelers visit the ATM all the time without paying attention to the latest exchange rates. You’re on the losing end that way. Be smart and bank smart so you give the banks less and can have more for your trip. I haven’t paid for a bank fee in years and you shouldn’t either. And with these tips, you’ll never have to again either.