Managing your money while you're out of the country has changed dramatically in the past decade. Traveler's checks, once an essential tool, are increasingly refused worldwide, while currency exchange companies, once ubiquitous in touristy neighborhoods, are also on the decline.
Why? Because the rise of the ATM has made it possible to draw money in the local currency nearly wherever you go — and at better rates than the middle-men of traveler's checks and money changers. Credit cards, too, are a poor way to fill a traveler's wallet; you'll pay a small percentage of the total you withdrew, and interest charges on the loan will kick in that very day — not at the end of the month.
But even though using your bank's ATM card to debit directly from your savings or checking account is the most economical way to fund your activities away from home, some banks charge higher rates than others for drawing cash.
Where does your bank stand in the equation? And what’s the best option for the constant traveler? There are a few considerations to keep in mind.
Understand the Fees
A typical bank will charge you a fee of a few percentage points of the money you withdraw, and the fees can add up. For instance, if you took out $125 worth of foreign money, you'd wind up paying another $3.75 on that transaction, plus whatever amount the operator of your chosen ATM adds for the privilege of using their machine. A typical fee might be $5 in some cases, so you'd be losing close to $9 on that $125 — and you'd lose it each time you made a withdrawal.
Even at their highest, these fees are rarely as harsh as what you'd lose going through a money changer (which may cost you an additional 10% more in fees, according to ConsumerReports.org) or a Travelers' check casher. However, that doesn't mean you should ignore potential ways to minimize these ATM fees when possible.
Select a Bank with Many Worldwide Options
If you go with an international bank that has branches worldwide, you probably won't have to pay that extra operator's fee when you use one of their ATMs. In such cases, banks like HSBC, Barclays, and Citibank will at least save that second fee. But don't assume these or other big banks will appear everywhere you go; Citibank, for example, has no locations in the United Kingdom except for London — and even there it has only three branches.
Choose the wrong bank for your destination, and you could get hit with the maximum fees. Bank of America, for example, has no branches in Ireland, which means if you go there, you’ll get hit for going out of network, you'll pay the ATM operator, and you'll get socked for the transaction fee.
Because they're smaller, credit unions may have strong no-fee agreements in North America, such as with the 17,000-machine Co-Op Network, but they tend to be weak on fee-free ATM transactions abroad.
Another potential issue with credit unions and Internet banks is support. Many don't operate 24-hour telephone help lines, which could make solving emergencies from a different time zone impossible. Although the giant consumer banks pelt you with more fees, they also supply more immediate service, including a willingness to accept collect calls from abroad.
It's always smart to call your bank ahead of time to make sure your card will work where you're going. Even if your bank belongs to a known network such as Cirrus, not all Cirrus locations will automatically work. Your bank can point you in the right direction for working, fee-free machines if you give it a head's up first.
Choose a Bank that Reimburses ATM Fees
If you use an ATM that isn't run by your bank, you may also be charged what's called a "foreign exchange fee," which refers not to your international location but to the fact that you're not drawing your money from an in-network machine. Some smaller banks such as Ally Bank, Liberty Bank, and USAA, a bank for military families, reimburse their members for fees incurred by domestic ATMs.
Others, such as Nationwide, set a limit on the number of transactions it will reimburse each month, which isn't very helpful on a fast-paced, multi-city European vacation that requires several currencies. TD Bank will also reimburse non-TD Bank ATM fees for members with a minimum balance of $2,500, while PNC will do the same for a minimum deposit of just $2,000.
Luckily, there’s a trend toward removing these out-of-network fees; U.S. customers are rebelling against the surcharges, which can run as high as $6, so their removal has become a new point of competition among upstart institutions. Countless local banks and Internet-only banks also reimburse fees to compete with the Big Boys of Banking, so it pays to start a search for a bank by looking for little-known names.
Look for Fee-Free Networks and Reciprocal Agreements
A lack of branches and that "foreign exchange fee" are often offset by surcharge-free ATM networks that enable you to withdraw cash at machines that aren't run by your bank or by reciprocal fee-free agreements with other banks.
Bank of America, for example, has agreements with Scotiabank (Caribbean, Canada, and Mexico), Barclays (Europe and Africa), Westpac Bank (Australia), plus a few smaller banks, as part of the Global ATM Alliance.
ING Direct issues a smartphone app that locates nearby surcharge-free ATMs for depositors, including 43,000 machines connected to the fee-free Allpoint network worldwide (which is also used by Nationwide). In Citibank's case, fee-free access includes some 6,000 7-11 stores in the United States, and it also includes some 17,000 ATMs that are members of the MoneyPass network worldwide. You can search out those ATMs without being a bank member at MoneyPass.com.
These agreements are always in flux and sometimes dependent on the amount you have on deposit, so make sure to ask about reciprocal ATM agreements before joining a bank.
Dropping ATM usage fees will save a few dollars per withdrawal, but there's still that other surcharge to contend with. The percentage of the transaction, called the foreign exchange fee, is non-negotiable with all of those institutions.
The One that Waives Both Fees
One rare major institution reimburses both ATM fees worldwide and waives that pesky 1% to 3% foreign transaction fee, taking the sting out of a trip to a foreign ATM.
That bank is brokerage Charles Schwab, whose checking accounts don't even require a minimum deposit. Some banks waive the foreign exchange fee for high-deposit customers, like Citibank's Citigold program. But considering there's a $30 monthly fee for that program's users who have deposits that total less than $50,000, that option isn't for everyone.
So, when it comes to drawing money internationally, there isn't currently a better option than Charles Schwab, thanks to its lack of fees and round-the-clock customer service. For its industry-bucking economy, Schwab is justifiably popular with frequent travelers for daily banking.
Photo credit: Nichol Brummer Flickr