It’s Your Money Column – Converting Dollars 1

Question: I’m planning to travel in Europe this summer and have heard that some credit cards are tacking on extra charges. What’s the best way to pay for things in foreign counties?

Answer: Credit cards often have been used by savvy travelers for protection and because the cards offer favorable exchange rates when making purchases in foreign countries. Credit cards are still a good alternative to carrying a wallet bulging with cash, but beginning in May, many credit card purchases will exact a higher surcharge.

Visa and MasterCard have long added a 1 percent charge to expenditures. You probably never noticed because the charge was factored into the amount converted from foreign currency to dollars. This charge often was much less than the commission you payed to covert cash or credit cards to foreign currency.

Now many issuing banks will be adding an additional amount to your credit card bills for their profit. They can charge what they want – some add as much as 5 percent to your charges, while the average is 2 percent. When this is added to the Visa/MasterCard charge, you’re looking at paying at least 3 percent to your credit card. One reason that this recently became big news is that the million-plus United Airlines Mileage Plus customers soon will have this surcharge added to their purchases.

What are your alternatives? If you plan to charge $4,000 on your credit card with the additional 2 percent surcharge, you’ll pay an extra $80 to use the card. There are still banks and credit unions that issue credit cards without the added surcharge, but you’ll give up the opportunity to earn frequent-flyer miles.

You can use your ATM card. There will be additional charges from the foreign ATM and your own bank may also add ATM charges. Some credit unions do not charge an ATM fee to their members. The fee is often fixed so that, the more money you take out, the lower the cost of using an ATM. However, you don’t want to carry too much cash. You should check with your ATM issuer to find out what the maximum withdrawal is per day. (Always use the withdrawal choice on the ATM machine. The fast-cash option is generally much less than the amount you can withdraw.

Changing dollars or traveler’s checks may carry the highest fees, especially at airports. You could try to get travelers checks in foreign denominations before you go, but don’t be surprised if smaller hotels and restaurants won’t accept them.

Finally, don’t use a cash advance from your credit card. With additional charges, this can be the most expensive option of all.