Money Matters

Want to minimise hassles and fees, and maximise convenience and peace of mind when you take your spending money travelling? Louise Southerden weighs up the four main travel money options.

No matter where you go in the world – backpacking through Britain, cruising the South Pacific, bike-touring through Asia, café-hopping in Chile, overlanding in Africa – you’re going to need spending money. The question is how to take it with you and/or access your hard-earned travel dollars when you get there: cash, credit cards/debit and ATM cards, pre-paid travel cards or travellers cheques?  

Dollars and sense: Cash

First things first: you’re going to need at least some cash in the currency of your destination as soon as you arrive, for those immediate, on-the-ground expenses like a cab to your hotel or a reviving cup of coffee. It’s not a good idea to take all your travel funds in cash – try to supplement cash with one of the other travel money options.

Pros: Cash is convenient and there are no hidden costs when you’re actually spending it.

You can buy currency online, such as through Commonwealth Bank’s Express FX service which allows you to buy foreign currency when the rate suits you, then just pick up your currency at a local branch.

Cons: There’s no emergency back-up – when cash is gone, it’s gone. Try to compensate for this by being extra-vigilant when travelling by, for example, keeping any cash in a money belt or neck pouch; and take a credit card or ATM card to withdraw cash or pay for accommodation or transport in case you are robbed.

Options: If you’re travelling to more than one country, try to anticipate the amounts of each currency you’re going to need, to avoid changing between currencies. Euros are currently accepted in 17 of the European Union’s Member States; US dollars can be used across South-East Asia and South America; US dollars or UK pounds in Africa; US dollars and Australian dollars in South Pacific nations.

Tips: Beware the hidden costs of changing money: some financial institutions might say their “commission” is only 1 per cent (with a minimum charge of about $5) but their exchange rate margin might add another 1 per cent.

When to take cash: For small expenses such as cab/bus fares and tips; when travelling for a short time or taking a relatively crime-free option (e.g. an all-inclusive hotel or cruise ship); and travelling where there are unlikely to be ATMs or anywhere you can cash travellers cheques.

Plastic fantastic: Credit/debit cards and ATM cards 

For sheer spontaneity, you can’t beat credit cards, ATM cards, and debit cards such as the Visa debit card (which can be used anywhere a Visa credit card can be used except the money you spend comes out of your bank account) – just pack your bags and go. Most cards can be used to withdraw cash at more than a million MasterCard/Cirrus and Visa/Plus ATMs (there are 90,000 Visa ATMs in China alone since the Beijing Olympics). Credit/debit cards can also be used to buy goods and services almost anywhere in the world as well. 

Pros: Convenience is the big one – the only thing you need to do before you travel is make sure your accounts are accessible overseas and to ask your bank about the fees and charges to use your cards overseas. Cards can generally be replaced if lost or stolen, often within 24 hours, and many credit card companies offer insurance for items bought with their card.

Cons: Fees and charges, which will depend on how you use your cards and which bank you’re with. The most cost-efficient way to use your cards is to use credit/debit cards for major purchases (shopping, dinners out, accommodation) and withdraw cash using your ATM card (which will cost $4-5 per transaction plus a foreign currency conversion fee of 2-3.5%). Things start getting expensive when you use your credit card to withdraw cash from an ATM because it will be treated as a cash advance and, in addition to the foreign currency conversion fees, interest will be charged immediately – you won’t get the usual quota of interest-free days that you get when you use your card to buy goods or services. Other downsides include credit card fraud, daily limits and machines that devour ATM cards with abandon, and your bank can block usage of your card if your spending seems ‘out of character’ with your usual usage of the card (unless you inform them of your travel plans).

Options: Take your existing cards, or get one specifically for travelling, such as the 28 Degrees MasterCard which has no annual fees, no currency conversion fees and no fees for ATM withdrawals, cash advances or overseas purchases.

Tips: Try to use ATMs affiliated with your Australian bank; Westpac customers, for instance, can use ATMs fee-free at Bank of America in the US, Barclays in the UK and Scotia Bank in Canada, fee-free (though you will still pay currency conversion charges).

When to use credit/ATM cards: For short trips to destinations with high card acceptance and a good ATM network. Credit cards are also required when you want to hire a car.

SHOW ME THE MONEY

How do the different options stack up in terms of fees and charges? Here’s what it really costs to take $3000 spending money to the UK:

• Cash: $30. Most Australian banks and foreign exchange bureau charge about 2.5% exchange rate margin plus a fee/commission to change $3000 Australian dollars to Pounds Sterling.
• ATM cards: $84-90. Typically, to make six $500 withdrawals, you’ll pay $24-30 transaction charges plus $60 (six times the $4-5 withdrawal fee plus six times a 2% fee of $10). If using the 28 Degrees MasterCard, there are mysteriously no fees.
• Pre-paid travel cards: Loading $3,000 onto the card will generally cost 1-1.1% of the transaction amount, i.e. $30-33. All providers also charge an additional 1-1.1% per subsequent re-load. Card issue fees vary between $0-$15 and withdrawal rates range from $0-3.75.
• Travellers cheques: $0 (when TCs are purchased commission-free, see above) or $30-33 when there is a commission, usually about 1-1.1%.

Pay before you play: Prepaid travel cards

Prepaid travel cards are the newest kids on the travel money block and growing up fast. Here’s how they work: you ‘load’ funds onto the card in the currency of your destination (hence no currency conversion charges and no need to worry about fluctuating exchange rates) then withdraw cash in the local currency (so no currency conversion fees) at ATMs around the world. 

Pros: These cards offer the convenience of using an ATM card with the security (and locked-in exchange rate) of travellers cheques. You can keep track of your spending by checking your balance and transaction history online. You can also reload Cash Passport Cards (see Options, below) online and by sending a text message from your mobile phone anywhere in the world. Unlike credit cards, pre-paid cards can be issued to anyone under 18 with no credit rating. Depending on your bank, a prepaid card may also be cheaper to use overseas than your ATM card.

Cons: Same as for ATM/credit cards regarding fraud and uncooperative ATMs. Make sure there are ATMs that are compatible with your prepaid card at your destination.

Options: Travelex is still the world’s largest distributor of prepaid cards and now offers two kinds of Cash Passport Cards: the Cash Passport Prepaid Visa TravelMoney Card for use at any Visa ATM as well as retailers worldwide and the Multi-Currency Cash Passport Prepaid MasterCard which stores up to nine currencies. There’s also the Commonwealth Bank’s Travel Money Card which can be used to withdraw cash and make purchases wherever MasterCard is accepted. Likewise, the ANZ Travel Card can be used at ATMs and anywhere Visa cards are accepted.

If your card is lost or stolen: Pre-paid travel cards are more secure than a credit card because they can only be used with a PIN; and they’re not linked to a bank account (most cards don’t even have your name on them) and your funds are stored in the Visa Travel Money system, not on the card. Travelex Cash Passport Cards have 24/7 Emergency Assistance which includes free replacement cards within 24 hours and emergency cash within 10 minutes anywhere in the world.

When to use prepaid travel cards: When you are going to be using one currency for the duration of your stay (you will pay foreign currency conversion fees if you withdraw cash in a currency other than the one you loaded onto the card), when you are going somewhere where ATMs are plentiful (i.e. virtually anywhere), when you want to keep tabs on your spending or when you’re travelling as a couple (you’re issued two cards, which can allow dual access to funds if you choose).

Better safe than sorry: Travellers Cheques

One of the big questions in the travel money industry is whether travellers cheques (TCs) are going the way of the Dodo, given the growing popularity of competing products like prepaid cards. According to Nik Ehnbom, Regional Marketing Manager Asia-Pacific at Travelex, travellers cheques are “dying a not-so-slow death across the world”. Travelex has stopped issuing Thomas Cook and Visa TCs, but still issues American Express TCs. 

American Express, not surprisingly, maintains that TCs are here to stay; a million Amex TCs are encashed every day around the world. “The key purchasers of American Express travellers cheques are actually 26- to 39-year olds,” says Phillip Marnoch, Client Relationship Manager for Australia & New Zealand at Amex. “That’s probably because they’re likely to go backpacking and travelling for a while and they want to make their money go as far as possible, so they’re looking for zero commission opportunities; and they’re usually going somewhere a little off the beaten track where there isn’t an ATM on every corner.”

The good: The two main benefits of using TCs are peace of mind (they can be replaced within 24 hours almost anywhere in the world; and cashing them requires two signatures) and affordability. They can be purchased commission-free, e.g. when ordered online through  Amex and with a bit of planning they can be encashed free too: there are 120,000 fee-free encashment locations around the world. And although they’re not as spontaneous as ATM cards, that can be a good thing if it slows down your spending; the stub of each TC allows you to see at a glance how much money you have left.

The bad: They can be inconvenient to carry (they don’t fit into your everyday wallet like a credit card and Amex has no plans to change the size of the cheques). Finding a (preferably fee-free) office to cash them isn’t always easy. Some banks require photo ID when cashing TCs, which means having to carry your passport around with you.

Options: American Express travellers cheques, now the only ones available in Australia, can be purchased in eight currencies from American Express Foreign Exchange and Travel Service offices, Travelex, Australia Post and banks/credit unions such as Westpac, Commonwealth Bank and NAB.

When to use TCs: Travellers cheques are great on long trips when you’re going to be away for months at a time or when travelling off the beaten track. It can be a good idea to take some TCs as an emergency back-up (they never expire so you can take unused TCs on multiple trips). They are well-serviced in China where prepaid travel cards aren’t as popular yet. When travelling in the Americas and Canada, US-dollar TCs can be used instead of cash in many shops, hotels and restaurants. 

With all these options and their pros and cons, there’s a lot to think about, but the secret to being smart with your travel money is to spread the load: a bit of cash for daily expenses (bus fares, cups of coffee, tips); credit cards and ATM cards for ready access to your funds from ATMs and for major purchases; pre-paid travel cards (or TCs) for the bulk of your funds and an emergency stash of cash or travellers cheques if you’re going away a while or heading somewhere remote.