The exchange game: Pay attention when it's time to pay

When Kevin Payne, of Dublin, Calif., went shopping for crystal and whiskey during an August vacation in Ireland, clerks at the Waterford Crystal Factory and Jameson Distillery rang up his credit-card purchases in U.S. dollars instead of euros.

The cost for doing this, as Payne found when he got home, were purchases converted at an exchange rate that was 2 to 3 cents on the dollar worse than it was for other items he charged to his MasterCard on the same day.

"Dynamic currency conversion," as the practice is called, is sold as a convenience that gives travelers the option of paying in dollars instead of the local currency. What Payne learned is that it's also a money-making opportunity for merchants to convert prices at any exchange rate they want, and pocket the difference as a fee.

Irritated, Payne posted a warning on guidebook author Rick Steves' Graffiti Wall, an online bulletin board where travelers exchange advice.

"Be aware of this practice and ask the clerk to cancel the transaction and create a new one in euros," he warned.

Jen Peters, of Morrice, Mich., felt similarly burned after she loaded $2,000 on a prepaid American Automobile Association-issued Visa TravelMoney Card for a trip to England that she arranged for her minister husband and nine members of their church.

Transactions processed using the card, good for ATM withdrawals and purchases from merchants who accept Visa, reflected a 7 percent surcharge above the interbank rate — the changing daily exchange rate that the big banks charge each other, a rate that appears daily in the newspaper.

Quite a difference

"I checked into it and found my own credit-card company only charges 1 percent [above the interbank rate]," she said in an e-mail about her Graffiti Wall posting. "I started crunching the numbers and found a big difference ... For about 981 pounds spent in England [a little less than $2,000], I was charged about $120 more for using the AAA card at 7 percent than had I been charged for using my credit card."

With the value of the U.S. dollar plunging to record lows against the euro, pound, Canadian dollar and many other foreign currencies, more travelers are becoming aware that how you pay for hotels, cars, restaurants and other expenses affects how much you pay.

Fees and service charges for converting foreign currency into dollars aren't going to make or break a trip. But depending on how much you spend, the savings from using one type of ATM or credit card over another, or how you exchange dollars for euros, pounds or pesos, could buy lunch or a dinner or another night's hotel stay in Paris or Puerto Vallarta.

Here's an update on some of the options:

Credit/debit purchases

Most credit- and debit-card issuers charge a currency-conversion fee on purchases made in a foreign currency. This includes anything you buy via the Internet that's charged in pesos, euros, etc.

The good news is that Visa and MasterCard networks process foreign purchases at or near the interbank rate. The bad news is that they charge a fee of 1 percent of the purchase price. Beyond that, some card issuers add their own fees, usually 2 percent, for a total of 3 percent.

Based on the current exchange rate of $1.40 to the euro, a 1 percent fee would show up on your statement as $1.40 for 100 euros worth of purchases. At 3 percent, it would be $4.20.

Best advice: If you're going to be traveling outside the U.S., including Canada and Mexico, use a card that charges a maximum fee of 1 percent.

Virginia-based Capitol One (www.capitolone.com) offers the best deal. It waives all foreign transaction fees, including the 1 percent charged by Visa and MasterCard.

Next best are smaller local and regional banks and credit unions. Locally, Frontier Bank, Washington Mutual, First Tech, Boeing and Watermark credit unions are among those issuing credit cards with a 1 percent fee. Many national banks, including Bank of America, Citibank and Wells Fargo, charge 3 percent. American Express charges 2 percent

Beware that fees change often, and the information isn't easy to come by. Details are often hidden in the fine print. Before you travel, call your credit-card issuers and ask about fees for foreign transactions. See www.bankrate.com/currencyconversion, a link to a Bankrate.com study, updated in April, on fees charged by 11 national card issuers.

Avoid attempts by foreign merchants to convert your purchases to dollars on the spot. They may add 3 or 4 percent or more onto whatever conversion fees your credit card issuer charges.

"Dynamic currency conversion adds up to double charging," says Linda Sherry, of San Francisco-based Consumer Action, a consumer-advocacy organization that issues an annual credit-card survey (www.consumer-action.org). The main offenders: rental-car companies and shops that cater to American tourists or cruise-ship passengers.

ATM withdrawals

Withdrawing money from an ATM is still probably the easiest and least costly way to obtain cash while traveling, but there are a few caveats:

• As with credit cards, watch the fees. Aim for a card with a maximum fee of 1 percent of the withdrawal amount for obtaining foreign currency and debiting your checking account back home. Again, smaller banks and credit unions are the best bets.

• Avoid additional withdrawal fees. Bank of America, for instance, charges $5 per foreign ATM withdrawal plus a 1 percent fee, but waives the charges if you use an ATM at a Global Alliance affiliate bank: Scotiabank, Canada; Barclays, UK; BNP Paribas, France; China Construction Bank, China; Deutsche Bank, Germany; Santander Serfin, Mexico; and Westpac, Australia and New Zealand.

• Some foreign banks also charge withdrawal fees. Minimize these by asking your bank or credit union to raise the amount you can take out each time. If your limit is $200, ask for $400.

• Tell your bank or credit union that you'll be traveling and using both your ATM and credit cards in places where they might otherwise suspect fraud.

• Carry a backup card linked to another account. ATM fraud is on the rise, and although you're unlikely to lose any money (most banks and credit unions offer the same "zero liability" protections on ATM cards that they do on credit cards), you could find access to your funds frozen if a system-wide problem develops or your card is lost, stolen or copied and used fraudulently.

• Don't use a credit card to obtain foreign cash unless there's an emergency. You'll pay high fees plus interest on the advance.

Prepaid cards/travelers checks

Once touted as a replacement for travelers checks, the plastic "Travelers Cheque" prepaid money card offered by American Express became history a few months ago when Amex decided to drop it, citing low acceptance.

AAA offers a similar card, but as Jen Peters found out, the Visa TravelMoney card is an expensive way to go.

There's a $4.95 activation fee, a $2 charge for international ATM withdrawals, a 7 percent surcharge on the interbank rate and restrictions on some types of purchases. As of February, the conversion surcharge will drop to 3 percent, when AAA switches vendors, but the fee for international ATM withdrawals will increase to $3.

AAA promotes the cards as the plastic version of paper travelers checks, but the cost of using them is higher, and unlike travelers checks, which can be purchased and used in small denominations, the prepaid cards are designed to be loaded with large amounts of cash up front. Lose the card and you're out everything until the reimbursement comes through.

Travelers checks, while they're still available (AAA offices in Washington stopped offering them in September), are still the best insurance against getting stuck if the ATMs go down or your bank cards are lost or stolen and you suddenly need cash.

Best advice: Go to a bank or credit union that charges no fee for American Express checks, and get a stash to take along as an emergency backup. Get them issued in dollars (as opposed to pounds or euros, which aren't as widely accepted).

The exchange rate to cash them may not be the best, and some merchants won't take them, but the checks can be cashed at most banks, airport currency-exchange windows and Amex offices. They saved the day for me in India last year when I had to pay for two plane tickets in cash — and the airport's only ATM wasn't working.

Get cash before you go

Obtaining foreign currency in the U.S. before you travel is the most expensive way to go — a combination of high fees and poor exchange rates.

Bank of America stopped selling foreign currency at its branches last year. Customers can order cash online for a $7.50 fee (waived for amounts over $1,000) for delivery in a few business days. It quoted an exchange rate of $1.48 last week, a 5.7 percent premium over the interbank rate of $1.40.

Travelex sells foreign currency at a kiosk at Seattle-Tacoma International Airport and at its downtown Seattle office in Westlake Center. The rate quoted last week on the euro was $1.58 plus a $5.50 service fee at the airport and $1.57 with a $5.95 fee downtown.

Foreign currency can be ordered for delivery at AAA branches. The euro rate was $1.51 with a $10 service fee for amounts under $1,000.

AAA also sells "TipPaks," packets containing $100 worth of euros or British pounds in various denominations. Available at most branches without a wait, the costs varies according to when AAA purchases the currency.

Depending on timing, it can be cheaper or more expensive than ordering currency for delivery, so it pays to check rates on both before buying.

Carol Pucci's Travel Wise column runs the last Sunday of the month in Travel. Comments are welcome. Contact here at 206-464-3701 or cpucci@seattletimes.com.