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Costs and logistics of a RTW trip

Costs and logistics of a RTW trip

Saturday, June 19, 2010

RTW travel - how best to access money - cards (ATM/debit/credit)

On most of my trips around the world, I've taken 2 ATM cards (one backed by Mastercard from Citibank in the US, and one backed by Visa from HSBC in the UK) and 2 credit cards (a Mastercard from Bank of America in the US, and a Visa from HSBC in the UK).  I've rarely used either of the credit cards while travelling, and have usually only needed the Mastercard ATM card.  The big exception to that previous sentence was Africa, which I will deal with in one of my continent-specific posts.



I should clarify my card descriptions, though the rest of this paragraph is by no means gospel and is just my limited understanding of how the ATM networks function.  I'm assuming that the credit cards are self-explanatory so I'll just stick with the ATM cards.  In most cases, an ATM card is equivalent to a debit card though I never tried any POS (point of sale) transactions with either of mine so can't comment on that aspect of them.  An ATM card backed by Mastercard will likely have one or more of the following symbols: Mastercard, Maestro, Switch, or Cirrus.  An ATM card backed by Visa will likely have one or more of the following symbols: Visa, Electron, or PLUS.

A few general points about travelling with credit cards:  
i. One of the worst ways to access cash is to use your credit card in an ATM.  This is called a cash advance and is basically a loan.  You will pay punitive interest on this even if you pay off your bill on time.  If you use it abroad, you will also no doubt have to pay some kind of foreign transaction fee (usually about 3%) plus quite possibly a commission to the bank whose ATM you use to withdraw the money.  Don't get cash advances except as a last resort.
ii. Note that using your credit card abroad for purchases will likely also incur a foreign transaction fee.  In a number of countries (Ecuador springs to mind), the merchant will add on a hefty commission before the final total is calculated - the justification for this is supposedly that it's very expensive for the merchant to be connected to whichever credit card network they are affiliated with.  I don't know the truth of that but, either way, watch out for this.  As an example, in Ecuador, the merchant commission could be as much as 10%.
iii. Note that the foreign transaction fee is usually charged if you use the card outside of the country of issue - the deciding factor is NOT the currency.  Ecuador provides another good example.  Even though the currency in Ecuador is $, you will still be charged a foreign transaction fee if you use a US-issued (and hence $-denominated) credit card there.
iv. The merchant may offer to make the charge in your home currency rather than the local currency (i.e. the currency of the country you are paying in).  In pretty much all cases this will work out as a worse exchange rate than if you choose the local currency and let your credit card company do the conversion.
v. If you are expecting to make great use of your credit card while abroad, it might pay to apply for one that doesn't charge a foreign transaction fee.  In the UK, I think both Nationwide and the Post Office issue such cards.




A few general points about ATM cards:
i. If you use your ATM card abroad, it's highly likely you will be charged a foreign transaction fee.  In my experience, this has typically been less than that for a credit card (maybe 1%) but I've noticed a trend for increasing this (I think both my ATM cards now charge 3%).  Note that this fee may not appear as a separate line item on your statement - it might be included in the exchange rate for the withdrawal.
ii. Even if you can't find an ATM to accept your ATM card, it may still be possible to withdraw money over the counter inside a bank.  This may well incur a commission, but you'll still lose less than using your credit card for a cash advance.

iii. If you are going on a long trip and expect to make great use of your ATM card while abroad, it might pay to apply for one that doesn't charge a foreign transaction fee.  In the UK, I think Nationwide issues such a card.
It's a good idea to warn your bank/credit card company about your travels in advance, so that when you first use your card in foreign climes, they don't suspend it because they think it's been stolen.  Note that the algorithms for detecting abnormal activity aren't that great - I travelled through 10 different countries in Africa before Citibank suddenly decided that my withdrawal attempts in Madagascar were indicative of abnormal activity.
In some countries, you may find there are limits on how much you can withdraw in one transaction, e.g. in Argentina, many ATMs had a 300 peso limit (about $75).  Depending on the machine/bank, you can get round this by making several withdrawals from the same machine, making several withdrawals from different machines, or making several withdrawals from different banks.
Both credit cards and ATM cards are generally covered by their issuing companies/banks so that you are insured to the tune of £50 maximum (I'm simplifying here - there are other places on the web with full details about liability).  Just make sure you have the appropriate phone numbers in case you do need to cancel a stolen/lost card.
Prepaid cards seem to have become more popular recently, but I really don't see any advantage to them when travelling abroad.  As long as you are capable of keeping track of your spending, and maintaining an awareness of your credit card limit and bank account contents, then a prepaid card seems unnecessary.
Finally, there are also safety issues associated with cards.  Like with cash, don't carry them all in one place - best to spread them through your luggage so that if one is lost/stolen then hopefully the others won't be.
I rarely used my credit card while travelling but, if you are going to, be careful of potential scams - you'll need to use your judgement (backed up by research) based on the country you are in and the establishment you are buying from.  Try not to allow your credit card out of your sight, to minimise the chance of it being copied.  Though you should be doing this anyway, whether at home or travelling, make sure you check your bill closely to ensure no extra items get added on.
ATM cards present further issues.  Never allow anyone to distract you at an ATM.  If you are having problems figuring out how to use it (perhaps it might be in a language you don't understand), ask a bank employee to help you.  It only takes seconds for someone to skim your card (a popular scam in, say, South Africa).  Try to visit ATMs in busy areas during the day time, to minimise the chances of being mugged - whatever, always be vigilant about your surroundings.  And if you are withdrawing a large amount, try to immediately get back to your accommodation to drop it off rather than carry it around with you all day.
My next post will be a short one, mentioning your remaining options for acquiring money if you have neither cash nor a card.

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