When you prepare to travel outside of the United States you will want to consider this question in the context of your trip.  Will your credit cards be commonly accepted?  Can you easily get cash when needed?  Will you be able to purchase items with US dollars or will you need to deal with foreign currencies?

Whether you’re traveling with an organized tour or if you are an independent traveler planning and managing your own itinerary, you will need to pay for things:  hotels, food, tours, transportation, etc.  Many of these items will require the use of cash in local currencies so your credit cards alone will not suffice.  So, let’s look at your options.

The only places that I know of that use the US dollar as their official currency are Ecuador, El Salvador, various south Pacific and Caribbean islands.  In Panama it is accepted as a de facto currency alongside their own Balboa and Belize will accept your US dollars interchangeably with their own (1 USD = 2 BZD).  In mostly all other travel destinations you will want to have access to the local currency.  Of course there are places that will accept the USD but you’re allowing the seller to essentially dictate the exchange rate and you can be sure that this rate will be very much in their favor.  For example, in Mexico we would see a tour listed with the cost shown in Mexican Pesos and dollars.  For example, the cost might be shown as 150 pesos or $15.  They conveniently rounded off to 10 pesos to the dollar when the exchange rate was actually more like 13.  That’s almost a 25% haircut for allowing you to pay in dollars.  The flip side of this situation was in Argentina.  They have issues with their own currency and most residents don’t really trust the Argentine Peso.  As a result if you bring dollars into Argentina you will find lots of opportunities to convert them to Pesos at better than the published rate.

So, what is the best way to obtain this currency and at an exchange rate that is favorable to you?  Fortunately for us, the ATM has become a fixture in almost every corner of the globe.  When you arrive in a foreign country whether at an airport, train station or sea port, you will almost certainly find an ATM at that port of entry.  Now, most of us have an ATM card but not every ATM card is suited for withdrawing cash in a foreign country.  There are the issues of ATM fees and currency exchange fees.  For us the solution to this is the Charles Schwab Investor Checking debit card.  With this ATM card, any ATM fees you incur around the world will be reimbursed.  In addition, you will not be charged any foreign transaction or currency conversion fees for debit card purchases or cash withdrawals.  Your account will be debited the USD equivalent of the foreign currency based upon the published conversion rate in effect at that time.  Note that with many banks the foreign currency transaction may involve an explicit fee or the conversion to USD will be done at an unfavorable rate.

Now, how about credit cards?  First, we’ve found that in Latin America, credit cards are not widely accepted and in many cases, where credit cards are taken, the merchant will add an additional fee to the transaction.  However, for those places in the world where credit cards are accepted, returning to our familiar theme, you will want one that does not charge any foreign transaction fees.  Many cards will charge 3% to 5% for this “service” so these fees can add substantially to the cost for your travel.  Fortunately, it’s becoming easier to find these cards with no FX fees so you will also want to combine this feature with a card having attractive rewards benefits.  We are currently using the Chase Sapphire Preferred card which features very attractive travel rewards.  You receive bonus points for spending on hotels, restaurants, trains and other travel specific items.  Also, the points you accumulate can be transferred to many other popular frequent flyer and hotel programs.

Finally, with your no foreign currency transaction fee ATM and credit cards firmly in hand make sure that the merchant is putting through the transaction in the local currency and not converting it to USD and charging you in dollars.  If they do this you can again be sure that their conversion will benefit them at your expense probably to the tune of 3% to 5% or more.  So if you are in France, for example and the credit card terminal asks if you want the transaction in Euros or in dollars, choose Euros.  That’s the easy case, in other situations you may have to be more vigilant to be sure they are using the local currency.  When conducting web transactions the website should provide you the means to use the local currency.