Moving to Europe III – Money, Banking & Credit Cards
One of the key aspects for anyone from the US who is going to spend significant time abroad is how to handle your money. How do you get your US$ overseas in a way that doesn’t cost an arm and a leg? What’s the best way to bank and use credit cards while you travel? Do you need to open a local account, or can you do everything you need to do while keeping your accounts in the US?
Now we don’t claim to be experts on all this, but in the time we’ve been together we have lived away from the US several times before, both in Europe and Asia so we have *some* experience. Plus the world has improved (banking wise) over the years. These days online banking is offered everywhere, and there are lots of ways to save money on both transfers and cash usage when you travel.
So in case you’re considering a stint abroad, whether it be short-term (or longer term), hopefully this post will give you some ideas for how to do it in the best $$ way.
Fees Involved In Using US$ Abroad
The first thing to be aware of when you travel are fees! There are several types of fees you could be hit with when you use US$ abroad, and it’s important to understand them. The first of these is something you’ll just have to live with, but the other 3 can be mitigated (or even entirely eliminated) if you’re smart.
1/ Exchange Rates
No matter where you go, if you want to exchange your US$ into local money there will be an exchange rate involved, and it’s never a fixed thing.
First of all, currencies are traded worldwide so the exchange rate changes everyday. For example right now (as I write this post) the official exchange rate (= mid-market rate) between US$ and Euros is around 0.81 ($1 USD exchanges to €0.81 EUR), but that rate will be different later today, tomorrow, or next month. It’s always changing.
Also this exchange rate is never the same as the rate you’ll get through a local bank or agency. Local agencies always have their own exchange rates which are “padded” a bit to give them some profit. So, for example if I choose to exchange $1000 USD at Travelex today, they’d only give me €728.50 EUR (= their published rate) not €810 EUR (= the mid-market rate). The difference is the profit that they keep for themselves.
2/ Foreign Transaction Fees
In addition to currency exchange rates, you also have to be aware of something called foreign transaction fees. This can apply to both credit and debit cards and, if your card has it, that means you get charged an extra fee every time you use it abroad. It typically runs 2-3% of the cost of your purchase. So, if you charge $1000 on your credit card in a foreign country, you could be hit with an additional $20-30 of foreign transaction fees after-the-fact. It really adds up!
3/ Cash Withdrawal Fees (at ATMs)
If have a globally-accepted debit card*, you can withdraw local currency cash at most international ATMs the same way you can at home.
As long as the ATM you want to use displays a symbol that matches one on your debit card (e.g. Visa, Plus, Cirrus, Star etc.), then it’s a simple matter of inserting your card, plugging in your pin and you’re good to go. However, there will typically be additional fees involved that are charged by either your US bank, the local bank or both. This fee can vary from a fixed fee (per withdrawal) to a percentage (of the withdrawal) and they can be steep! For example Chase charges $5 PLUS 3% on all international ATM withdrawals…yikes! Also some debit cards will charge a foreign transaction fee (#2) in addition to the cash withdrawal fee, so be aware of that too.
*NOTE1/ Cash Withdrawal With Credit Cards? I specifically mentioned debit cards here, not credit cards. You can certainly use a credit card to withdraw cash from ATMs, but I would never, ever recommend it. This is considered a “cash advance” and typically has horrendous fees ($10 or 5%, whichever is higher!!) Just don’t do it.
4/ Cash Transfer Fees
If you decide to transfer money between countries wither via wire transfer or some other method there are typically also transfer fees involved that can vary from nothing (in select cases) to hundreds of dollars transaction.
So now that you know which fees you might run up against, how do you minimize or avoid them?
Transferring Cash From US To Another Country
If you’re going abroad for a short vacay, or (the other end of the scale) you’re planning a longer-term stay in a particular country, then you might want a way to physically transfer cash from USA to overseas. There are several ways to do it, depending on how much you need, and how often you plan to make a transfer.
1/ Carry Cash With You
If you’re only traveling for a short stint (say a holiday or a few weeks) you can bring US$ with you in hand and simply exchange them for local currency (at an exchange service or bank) when you get to your final destination. This is certainly the easiest method and one I’ve used many times before. I always carry some cash on-hand, no matter where I go, and try to find the best exchange rate (see above) before I change it to local currency. For added security, I always keep my money and key documents in a good money belt. For the latter I recommend a belt that sits close to your body, has integrated FRID protection, and won’t buzz thro’ security. This Thin Profile Belt from Amazon.com is an excellent example.
For longer-term travel stays however, this is just not practical. In EU, you have to declare anything over €10,000 and, for security purposes, you wouldn’t really want to carry that much cash anyway. So, what are the other options?
2/ Open A Local Bank Account & Wire Money
This is probably the most “old fashioned” way, but it’s tried and true and it’s the method we’ve used in our previous stints abroad. Once you arrive to your “new” country you simply open a local bank account, then you wire money from your US bank account to fund your local bank account as needed. You’ll need to collect some info (e.g. international account number & routing codes), and you may be limited on how much you can send (depending on the bank), but most banks offer this service online, so it’s usually fairly easy to do.
Gotchas? It might take some time before you can open a local bank account in your “new” country (sometimes you’ll be required to have a local address, local credit etc. before you can open an account). Also wire transfers cost $$! Your US bank will likely charge an outgoing international wire transfer fee ranging anywhere from $10 to $75, and your incoming bank likely has an incoming fee too. Plus currency exchange rates can be poor, depending on the bank and how you choose to wire the money (i.e. in local currency or destination currency).
3/ Open An HSBC Account That Allows Fee-Free International Transfers
One of the most innovative ways to cut down on wire transfer fees is to open an account with a global bank like HSBC. They’re one the very few banks I know where you can open accounts in multiple countries (sometimes even before arrival), see every account online (through a SINGLE log-in), and conduct fee-free wire transfers (up to $200,000 at a time!) between them with ease. In addition, you can withdraw cash at any international HSBC ATM free of charge.
Gotchas? You have to open an HSBC Premier or HSBC Advance account (both require maintaining certain minimums) to take advantage of international services, plus HSBC doesn’t always offer the (absolute) best currency exchange rates. Still, it’s one of the easiest ways I know to bank across multiple countries.
4/ Use A Peer-To-Peer Transfer Service
One the biggest changes I’ve seen in the money space since the last time Paul and I lived abroad is the explosion of online peer-to-peer money transfer services.
Back in our day, Western Union was really one of the few guys in the biz, but nowadays there are big players like World First, TransferWise, HiFX and more**, and they are really VERY snazzy to use. All are completely online and can be set-up in minutes, they’re inexpensive to use and they’re super fast too! Costs vary depending on $$ sent, so be sure to shop around for best price (this site has a useful comparison tool), but the rates are usually waaaaay less than bank wire transfers, and they usually guarantee faster transfer times AND better currency exchange rates than any bank too. For example, World First charges a flat fee of $10 on transfers up to $10,000 and no fee on transfers over that amount, a total deal! TransferWise charges a tad more, but guarantees real exchange rate (mid-market rate) on all transfers.
Gotchas? You’ll have to move your money from your “regular” account into the peer-to-peer service account before you initiate a transfer. Plus you’ll need somewhere (an account) to send the money to in your destination country. Each of these steps may involve additional fees (e.g. sending fees, receiving fees) so just make sure you include those in your final costs.
**NOTE2/ What About Paypal? Paypal is another well-known peer-to-peer transfer company, but I didn’t list them as an option simply because thy’re so darn expensive. International Paypal transfers are a small fixed fee PLUS 0.5-2% of the amount (depending on country) PLUS a currency conversion fee of 2.5%! This is OK for very small transfers (say, below $100), but it’s a terrible deal for anything larger.
Using Money (Abroad) That You Keep In The USA
Another option to physically transferring money abroad is simply to keep your money in your US accounts, and then use it through credit cards & ATM withdrawals abroad. This is actually one of the easiest ways to travel, especially if you plan to travel full-time and/or don’t plan to have a fixed base in the places you’re going (e.g. you’re RVing!). As long as you are aware of the fees involved and take a few steps to minimize them, it’s super easy to do too.
1/ Use Credit Cards With No Foreign Transaction Fees
One of the BEST steps you can take for international travel is to open one (or more) US-based credit cards with no foreign transaction fees. This allows you to charge all your travel expenses to your card in local currency without worrying about getting hit with extra transaction fees after-the-fact. Then you just pay off your card in the US, through your US bank account in US$. Easy peasy. There are many cards that have this benefit and you can read about a few of them HERE (The Points Guy)
Gochas? Although you avoid foreign transaction fees (with the right credit cards), you can’t avoid currency exchange rates. The rates on credit card transactions are set by the processing agency (see Visa and MasterCard online currency conversion tools), and integrated into the final price you see on your statement. They tend to match market fairly closely, but DO vary some from card to card (Pro Tip -> Mastercard tends to offer the best rates). See this post and this post for more about these rates.
2/ Use A US-Based Bank That Refunds International ATM Fees
What if you prefer to use cash? As I mentioned above, as long as you have a globally-accepted debit card* you can withdraw cash internationally from ATM’s the same way you do in the USA, but (yet again) you must beware of the fees! Many US banks charge fees for withdrawals from banks that are not in their network. In addition the local bank (in the foreign country) may also charge a fee, plus you might get charged a 2-3% foreign transaction fee too. But you can avoid all this! There are several different options out there, but IMO one of the best & easiest is to open a high yield checking account with Charles Schwab. It doesn’t cost anything to open, requires no minimums (it just needs to be linked to a Brokerage Account, which is also free to open), and you’ll get a Visa Platinum debit card that offers unlimited ATM refunds (anywhere in the world), with no foreign transaction fees. Outstanding! This is such a no-brainier that I really feel every traveler should consider it.
Gotchas? You’ll need to get your money from your “regular” US bank account into Schwab before you can withdraw anything with your debit card. So that does mean setting up a transfer between accounts, and then waiting for the funds to clear (takes 4 business days at Schwab). It’s FREE to do this however, so you just need to plan ahead to make sure your Schwab account has $$ in it when you need it.
Chip & Pin Credit Cards
A little extra caveat to consider when traveling to places like Europe is getting a credit card that offers “true chip and pin” capability, and this does take a little extra planning.
Most credit cards in the US these days are something called chip & sign. This means that instead of swiping your card to charge it (= the old-fashioned way) you insert it into a chip reader (almost all US credit cards have this option now), and then you sign the receipt manually after it is printed.
Europe is somewhat more advanced in this space. Over there most credit cards are chip & pin, which means that after you insert you card into the chip reader (there’s even wireless options these days) then you’re prompted for a pin number and that’s it. No signature needed, no extra stuff.
Why does this matter?
In most cases it actually doesn’t. In my experience 90-95% of places in Europe will accept regular American-issued chip & sign cards including pretty much all restaurants, hotels, airports etc. Instead of asking you to use the pin-pad to enter your pin number, they’ll just print out a receipt for you to sign on the spot. But there are 5-10% of places which do not and this includes certain grocery stores, automated kiosks at train stations, un-manned gas stations, un-manned bridge tolls etc. And if you’re planning to RV in Europe, these latter can be rather important. So, if that’s your plan it may be worth getting a card that can handle this before you go.
Not many US banks offer credit cards with true chip & pin capability (in addition to no foreign transaction fees), but there are a few banks that do and Barclaycard is IMO the biggest. The card that we carry is Barclaycard Aviator.
So, What Options Are We Using?
For now we’re keeping our money in the US until we decide where/when/if we want to bank in Europe, and we’ll simply travel on our credit cards and cash.
Credit Cards: We already have several no-foreign transaction fee credit cards in our wallet. Our top two favorites are Chase Sapphire Reserve (personal card -> our referral link HERE (50K sign-up bonus) if you’re interested) and Chase Ink Preferred (business card -> our referral link HERE (80K sign-up bonus) if you’re interested). Both of these earn UR points which are super valuable (we regularly redeem them for free plane tickets), plus they provide excellent travel benefits like primary car rental insurance, trip protection, Global Entry, lounge access and more. In addition, we both carry a Barclaycard Aviator card (true chip & pin capability, no foreign transaction fees, earns AA points).
Cash: For cash we thought seriously about using HSBC to open an account here and in France (it’s a very elegant solution), but we aren’t sure where our European RV travels will take us or how much time we’ll spend in France over the long term. So, in the end we went with a high yield account at Schwab. We can transfer money for free from our regular accounts to Schwab anytime we want and it gives us an easy, low-cost (all fees refunded) way to withdraw cash while abroad. If we decide to bank locally in Europe we’ll figure that out later.
That wraps up my post on money matters. If you have any additional questions or tips, feel free to comment below!