Your Europe Trip: Everything You Need to Know About Money and Tourist Ripoffs Feb 01 '03 (Updated Feb 04 '05)    Write an essay on this topic. Tweet The Bottom Line Should I take cash, credit cards, debit cards, traveler's cheques? How do I get the best deal on currency exchange? What ripoffs should I look out for? Money is always a concern for travelers. Which methods of payment will work in foreign countries and which won't? This ePinion tells you how to pay for things on your European vacation using a combination of cash, debit/check cards, credit cards, etc. It also explains the mechanics of currency exchange and describes common rip-offs designed to separate unwary tourists from their money. Note: Currency exchange rates vary constantly, so numeric examples in this ePinion are hypothetical, although all reflect rates that actually existed at some time. In particular, the US dollar has weakened dramatically against the Euro since this ePinion was written. PART I: CHOOSING YOUR TRAVEL MONEY My Minimalist Money Strategy When I go to Europe, I put two pieces of plastic into my wallet: a Visa credit card and a Visa debit/check card. When I arrive at the airport, I walk up to an ATM (Europeans call them "bancomats," "caisses automatiques," and anything other than ATM) and get enough local currency for several days using my debit card, and then I'm on my way. I pay for most purchases with my credit card, and get additional cash advances from ATMs with my debit card. [Note: in this essay, the terms "debit card" and "check card" are used interchangeably as are "ATM" and "bancomat."] If you'll only be traveling in the highly developed countries of western Europe, you really don't have to think about money any more than you would on a trip within the US. If you've got a credit card and a check card in your wallet, purse, or money belt, you're set. Millions of establishments accept Visa and/or MasterCard, and there are ATMs everywhere. Europeans may be even more accustomed to paying for their purchases with plastic than are Americans, although they tend to use debit rather than credit cards. Consider Various Methods of Payment You, on the other hand, may not be a minimalist, or you may be more cautious or paranoid than I am. If you're the type who feels more comfortable when there's a "Plan B," consider the pros and cons of the following suggestions, and use a combination that works for you: 1) Foreign cash. A month before you leave, go to your bank and order about one or two days worth of the local currency of the first country you'll visit, enough to buy some snacks, to get you from the airport to your hotel, etc. Maybe the airport where you'll be landing doesn't have an ATM (unlikely), or maybe your check card won't work. Having local currency buys you time to sort out problems you run into. The major disadvantage of this approach is that US banks and currency exchanges usually give very poor rates when you exchange your dollars. 2) US cash. Take enough US currency for incidentals that crop up in the US before you leave, while you're on the airplane and after you return. If all else fails, you can exchange your greenbacks for the local currency of whichever country you happen to be in. I'm talking about $100 here, not $1,000. 3) Credit cards. Visa and MasterCard are as widely accepted as in the US, maybe even more so. Other credit cards are not as widely accepted, so never depend on Discover, American Express or Diners Club as your only trave card. Use your credit card for ordinary payments in hotels, restaurants, shops, travel agencies, etc., but be aware that smaller family-owned establishments might not accept credit cards. You could also use your credit card for cash advances at banks and ATMs, but it's better to use a debit/check card, as explained below. 4) Debit/check cards. Take a Visa or MasterCard debit/check card to get cash advances from bancomats. By using a debit/check card, you'll avoid the outrageous interest charges that start immediately when you get cash with a credit card. If you wish, use the debit/check card for purchases for which you would normally use a credit card, but remember that some merchants who accept credit cards don't accept debit cards. In fact, most rental car companies will not accept a debit card when you pick up your car but will accept it when you pay your bill at the end of your trip. Also remember that you must have enough money in your underlying account to cover your debit card transactions. Remember, your bank will probably charge about $3 every time you get a cash advance with your check card. Therefore, get plenty of cash when you use your card, and use it as few times as possible. Important note: Test all of your credit and debit cards before you leave. If necessary, change the PINs so they have four digits for compatibility with European ATMs. Make sure the expiration dates on your cards are at least a few months beyond the end of your trip because some merchants balk at cards with imminent expiration dates. Another very important note: A majority of US credit and debit card issuers charge a 2% transaction fee on foreign transactions, but you don't see it because they bury it in the "exchange rate." They do not provide any service to earn this fee. For a detailed discussion of how most credit cards rip you off when you use them outside the USA, click Credit card purchases in foreign countries. Card issuers hide their dirty billing secret: GREED. For my review of a credit card that doesn't charge the extra 2% fee, click MBNA Visa Card . 5) Travelers cheques. I never take travelers cheques because banks and currency exchanges give lousy exchange rates when you cash them. But as a backup, you might consider taking some dollar denominated travelers cheques. These may save you in the odd situation where you can't use your credit or check card, the banks are closed, and you can't find an ATM but you can find a currency exchange (admittedly an odd combination of circumstances). If you're going well off the beaten track, even travelers cheques won't save you, so get plenty of local currency before you head out into the sticks. By the way, shop around for a source of free travelers cheques. The auto club (AAA) provides them free for members. Get a widely known brand such as Visa, American Express, or Thomas Cooke. 6) Redundancy. As a matter of personal comfort you may want to take more than one credit card, more than one check card, some travelers cheques, or some cash to help you through any emergencies, thefts, etc. If you do this, don't carry all your cards and money in one place, and never leave them "hidden" in your room or luggage. Keep the backups in a safe or in your money belt. Each member of your travel group should have his/her own money. PART II: CURRENCY EXCHANGE On a recent two-week trip to Italy, I never once visited a currency exchange. But, even if you use your credit and debit cards for most transactions, you may have to exchange currency at some point. Most American travelers don't want to think very carefully about currency exchange; it's too much to deal with for folks who are already stressed out by differences in culture, food, language, etc. They just walk up to the nearest currency exchange, hand over their dollars or traveler's cheques, and take whatever strange looking (but generally very pretty) bills and coins the clerk hands them. However, there's a right way and a wrong way to exchange your currency or traveler's cheques, and doing it the wrong way can cost you as much as 50% more than doing it the right way! Although I recommend you rely on credit and debit cards, I realize you will probably also have some US currency and/or US traveler's cheques, that you will end up with some foreign currency, and therefore, that you will eventually need to visit a currency exchange to get some local currency. From now on, I'll only talk about exchanging currency, but everything I say also applies to traveler's cheques, with exceptions explicitly noted. Where to Exchange Currency The golden rule: exchange your currency only at a reputable currency exchange or bank. Currency exchange is their business, and they give the best deals. If practical, check out a few different exchanges or banks to compare rates. Converse of the golden rule: Never exchange currency at a restaurant, hotel, retail establishment, or with a stranger on the street. Many tourist establishments will be happy to exchange currency for you but they often charge a premium of from 20% up to a truly outrageous 50%. I was once in France when the competitive exchange rate was 5.5 francs per dollar. The hotel I was staying in offered 4.5 francs per dollar. That's an 18% rip-off for the "convenience" of not having to walk a block or two to the nearest exchange. With some exceptions, currency exchanges in airports, train stations, and other heavily touristed areas have slightly worse exchange rates than less centrally located currency exchanges, but convenience is always an important factor. But, sometimes just walking a few blocks can save you 5-10%. In my experience, exchange windows at US airports almost always have very unfavorable exchange rates for European currencies. It's better to wait until you get to Europe to turn your dollars into Euros (or whatever) and also to change your left over foreign currency into dollars before you get on the plane to come home. Know Before You Go Before you travel, check out the foreign exchange column in the Wall Street Journal or other large newspaper and jot down the exchange rate for each country you will travel in. You should use these rates as a rough guide but realize a few things: 1) rates change from moment to moment in world markets, but during your trip they shouldn't vary too much from those you jotted down, 2) as a small currency trader, you won't be getting the rate quoted in the Wall Street Journal (e.g. you might be lucky to get 0.85 euros per dollar when the Wall Street Journal is quoting 0.91). Comparing the rates at a few currency exchanges will give you an idea of the actual exchange rate available to the general public. Know How Currency Exchanges Make a Profit Currency exchanges make a profit on transactions in two ways: commission and spread. Commission may be a fixed amount, a tiered amount based on the size of the transaction, or a percentage of the transaction. Usually, the larger the transaction, the lower the commission as a percentage of the transaction. Look for low commissions, but realize that low- or no-commission offers may not be the best deals. That's because you also have to deal with spread. So, what's spread? Well currency exchanges don't just allow you to buy the local currency with your dollars. They're also willing to turn around and sell the dollars back to you (or anyone else) in exchange for local currency (or any other currency). But here's the deal. A currency exchange in Paris might be willing to buy dollars from you for 0.88 euros each, but if you want your dollars back, you're going to have to pay 0.94 euros for each one. The difference between 0.88 and 0.94 is the spread, and it's their main source of profit. This may sound confusing, but your goal is simple. You want to get the largest possible amount of local currency in exchange for your dollars (or whatever currency you happen to be exchanging). Check out a couple of exchanges, note their commissions and exchange rates, and use your calculator (you did bring your calculator) to figure out how much local currency you will get for the number of dollars you plan to exchange. Choose the exchange that gives the most local currency. Simple! Currency vs. Traveler's Cheques Currency exchanges generally charge higher commissions and/or worse exchange rates for traveler's cheques than for cash, so be sure to read their terms carefully when calculating the amount of local currency you expect to get from your transaction. Also note that most currency exchanges will not accept foreign coins. Deciphering the Sign at the Currency Exchange When you get in line at the currency exchange or bank, you'll see a quotation board showing the prices (in terms of local currency) at which the exchange will buy and sell the currencies of other countries. I represent countries here by their names, but you'll often see them represented by their flags. For example, you might see a sign something like this in Switzerland (although it will list many more foreign currencies): KAUF VERKAUF CANADA .98 1.04 USA 1.48 1.55 (Sorry about the formatting.) It's not too hard to figure out that KAUF means BUY and VERKAUF means SELL. This sign tells you that the exchange is willing to give you .98 Swiss francs for a Canadian dollar and 1.48 Swiss francs for a US dollar. So, if you hand them a $100 bill, you should expect to get about 148 Swiss francs (perhaps less commission). This exchange is also willing to sell you a Canadian dollar for 1.04 Swiss francs or a US dollar for 1.55 Swiss francs. Just a Bit More Advice Have an idea of how much of the selected currency you should get when you do your exchange. Then check your receipt and count your money before you leave the exchange window. If there's a discrepancy, ask the clerk to explain. This isn't too hard when you're exchanging dollars, but things get even trickier when you're deep in your trip and you're exchanging euros for Swiss francs. Check out the BUY/SELL board to get an idea of the appropriate exchange rate, and use a calculator or a little mental arithmetic to avoid getting taken. End of Trip Advice Don't leave Europe with a huge wad of foreign currency in your wallet. Spend your coins, and exchange your banknotes back into dollars before you leave. Do this because the exchange rate will be much better in Europe, where there is lots of competition in the retail currency exchange business, than in the US, where there is almost none. Of course you should keep a small cushion for last minute purchases. PART III: COMMON TOURIST RIP-OFFS Coin Pinching and Short Change Coin pinching and short change are still the most common petty tourist ripoffs. Coin pinching occurs when you get frustrated with the unfamiliar currency and let a shopkeeper pick coins out of your hand. Why people allow this is beyond me. Get familiar with the currency and count it out yourself! Short change seems to be an art in some places. Unfortunately, I've experienced it roughly one out of three times I pay with cash in one particular country I won't name. The solution: expect to be shortchanged, know what you owe, know how much you handed to the clerk, know how much you should get back, count it. Beyond these petty ripoffs, you're likely to be exposed to a variety of practices that cause you to spend a lot more money than you really have to. Before you spend, you should be aware of three common and completely legal practices that separate tourists from lots of their hard earned money. This advice is couched in terms of Americans traveling in Europe, but it's equally applicable in principal to anyone traveling outside his/her own country. The selection of countries in the examples is purely coincidental. The Convenience Rip-off You're staying in a nice hotel in Paris, and as you cross the lobby headed out for your day of sightseeing, you suddenly realize you will need some euros to use as "walking around" money. Just as you wonder where to find the nearest currency exchange, you notice a sign on the front desk that says (in English no less) "Exchange 0.75 euros / US$)." Relieved, you plunk down a $100 traveler's cheque, and the smiling clerk gives you 75 euros. Of course, half a block outside the hotel, you notice a currency exchange that advertises 0.90 euros / US$. You could have gotten an additional 15 euros (20% more) by exchanging your traveler's cheque at the currency exchange. In other words, the convenience cost you about $16. This "exchange premium" is very typical. Hotels often exchange currency at a rate 15% to 30% worse than the competitive rate given by currency exchanges and banks. The bottom line: know the competitive exchange rate, and don't exchange currency at your hotel unless you think the convenience is worth 15% to 30% of the amount you are exchanging. The "20% discount for payment in dollars!" Rip-off Your tour bus stops in a picturesque Swiss town (say Interlaken, or pick a different country and town) with lots of curio shops. You go into one and notice a sign that says "20% discount for payment in dollars." You find something for a price of 100 Swiss francs, and the clerk, giving you your so called "20% discount," charges you 80 dollars. Later on, you notice that the exchange rate is about 1.35 Swiss francs per dollar, so you actually paid 108 Swiss francs (1.35 x 80) for an item priced at 100 Swiss francs. Rather than a "20% discount," you actually paid an 8% premium simply for the convenience of paying in dollars and the failure to ask what the term "discount" really meant. The "We accept dollars!" Rip-off Finally, you're about to check out of your big, sophisticated international hotel in Paris where your room rate was 200 euros per night. The clerk offers you the option to pay in dollars instead of euros, and the dollar rate is a mere $250 per night. By now you've realized that a smiling clerk is a tip-off, so instead of paying with dollar denominated traveler's cheques you whip out your credit card and pay the 200 euros per night. You smile to yourself, knowing that 200 euros is only about $210, a savings of $40 per night. PART IV: FURTHER READING If you're planning your first trip to Europe, or you just need to brush up your rusty travel skills, there's one essential book: Rick Steves's Europe Through the Back Door.

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