Cash Money

Believe it or not, folks, most foreign countries will not accept the almighty US Dollar. True story! I know this is my 12th foreign country, but we didn't really talk about our ATM process yet when we travel abroad.

Now while we ALWAYS try to use our credit cards to pay for everything (cash doesn't earn you free miles/points!), there are often scenarios where using paper over plastic makes sense, such as (a) when they don't take credit cards or (b) there's an extra % surcharge for using credit cards.

Depending on where you're traveling to, you'll run into these situations, especially for taxis and smaller local stores/restaurants. So we always make sure we have cheap access to local currency as soon as we land at the airport, just to be safe. I thought I'd share some of our best practices in case it helps others.

1. Use an ATM 
Well first and foremost, we always use an ATM from a respectable bank (or as close to one as we can find).

In our particular case, we landed in Hong Kong Airport around 10PM local time and found an ATM from HSBC (HongKong Singapore Banking Corporation) which is pretty well known in the US, well NYC anyway. The first one we saw as we cleared Hong Kong customs had a pretty long line, so we opted to exit to the public waiting area where there were more options and fewer people waiting in line.

Some people will prefer to use Travelex or some other Currency Exchange place. We NEVER use these places because the FX rates they use are usually so off "market" that we end up losing out. The few exceptions are however (a) Argentina where the Blue Dollar FX rate is significantly better for US dollar holders than the official FX rate and (b) when you still have some local currency leftover at the end of your trip. Trust me, no store in America will take a Brazilian Real or a Korean Won.

But aside from those special situations, using an ATM is most likely your best bet. The FX rates that banks offer you will closely approximate the official exchange rate. Plus the ATM fees can be avoided if you use an ATM that is part of your bank at home, or if you have a Charles Schwab checking account which will waive any ATM fees charged to your account.

Before we had a Schwab account, we'd always try to have 1 large ATM withdrawal for each trip to minimize the per transaction ATM fees (both from the local ATM machine as well as our bank for using a foreign non-bank ATM, which could total up to $7 USD per transaction).

While this strategy worked sometimes, we often ended up having to take out a large amount of foreign currency, which usually meant we'd have a lot leftover at the end of our trip. So we'd be forced to pay a hefty Travelex fee at the end anyway to convert the rest back to US dollars. Now with Schwab's ATM fee reimbursement, I can pull out $20-200 at a time and not worry about getting a $5 ATM fee charged each time.

2. Withdraw Odd Amounts
If your parents have ever let you use a domestic ATM before, you'll realize that they almost always spit out $20 bills. After all, $20 is an easy denomination to count and use at merchants in America. However at International ATM machines, they oftentimes give you much larger denominations to be efficient with space inside the actual machine.

Why is this a problem? Well, just imagine if your Chase ATM spit out $100 bills instead of $20. Try taking a $8.50 cab ride cross town and giving him a Benjamin Franklin. Good luck with that.

The exact same thing happens all over the world. One time back in 2008, my father was in Peru and had nothing but 100 Peruvian soles bills and literally couldn't find a way back to his hostel from the bars, because literally no one took credit cards or would break a 100 soles bill - which was actually only $35 USD.

So what do you do when confronted with an ATM that wants to give you high denomination currency? Pick a random number. Instead of pushing the preset button for HK$1000 (which is about $128 USD), my father entered in his own amount of HK$900. That way, instead of getting two HK$500 bills, he would get one HK$500 and four HK$100 bills.

In an ideal world, he would have picked HK$999 so he'd also get a HK$50 bill, a few coins for HK$10, HK$2 and HK$1, but those weren't options from the HSBC ATM.

3. Break Your Large Bills ASAP
Similar to the tip above, you don't really want any large bills. So as soon as you find somewhere that will take the HK$500 bill, use it. In our case, we found a 7-11 that took it for our purchase of a small juice and snack (HK$10). The cashier didn't even flinch and just ran the HK$500 bill under a UV light to check it was legitimate and gave us HK$490 back in change. But trust me, it usually won't be that easy all the time, especially when we're in less developed countries than Hong Kong.

4. When Using Plastic, Use a No FX Fee Card
So for the situations where you can keep your cash in your pocket, you should make sure you're using credit cards that do not charge any foreign transaction fees. For example, if you used your Starwood Amex card in Canada, you'd get charged an additional 2.7% as a FX fee by Amex. Clearly, the value of your SPG points earned from that transaction would be completely negated by the additional 2.7% fee.

Fortunately, there are several credit cards that do offer to waive FX fees, including the Platinum American Express, the Chase Sapphire Preferred, the Chase Hyatt Visa, the Chase British Airways Visa, the Citi Hilton Reserve just to name a few. So whenever we travel abroad, we keep the other cards at home, even if it means losing out on a category bonus (like 2x on dining or 5x on groceries).

5. Get Charged in Local Currency
There's a feature in many foreign countries that will "help" international travelers know what they're spending. It's called Dynamic Currency Conversion. Here's how it works:

Say you go buy some contact lens solution at a local pharmacy in Kowloon. The official price would be HK$41.40. After using our no FX fee Chase credit card, we were given the option of being charged either HK$41.40 or $5.57 USD by the merchant. While you may think that these two options are equivalent, don't be fooled. They're likely giving you an unfavorable FX rate.

Chase (and any other bank) will automatically convert a foreign charge into USD using their FX rate. Almost every single time I've ever made a foreign purchase, the rate that my credit card bank uses is significantly better than the FX rate used by the foreign merchant who is incentivized to use an FX rate that's more favorable to them (ie, more USD) so they end up with more when their bank converts back into their local currency.

While this particular pharmacy example didn't seem like it was a big deal, when you think about how much you might spend on a dinner or even a hotel, the small % differences really add up to a lot of $.

6. Use Leftover Foreign Currency to Paydown Your Hotel Bill

My nerd father likes to play this mental game with himself by trying to get to 0 local currency at the end of every international trip. Now, this doesn't mean that he goes to the airport gift store to buy a bunch of useless junk to "get rid of his foreign currency." You should know by now, he's way too frugal to waste money. Instead, he tries to strategize his ATM withdrawal amount and spending patterns to hit the elusive Zero.

He does this in two primary ways. Chances are that the last two payments people will make on an international trip will be (a) paying their final hotel bill when they check out and (b) paying for transportation to the airport.

When my family is in a situation where they took out too much foreign currency and have leftovers, they figure out what transportation back to the airport will cost and how they'll pay for it. If they can purchase a train/bus ticket using a credit card, then great. But sometimes, the only reasonable way to get to the airport is to take a taxi, which often only accepts cash. So at the beginning of the trip, my father will put aside that amount as "Taxi money" and keep it unused during the trip.

If he still have leftover foreign currency even after accounting for the return trip, then he'll just give the hotel all his excess local cash and it will pay down the hotel bill. Then whatever remaining balance can easily be put on his credit card of choice.

So perhaps you already knew some of these tips, but perhaps you learned something new that you can use. Travel well!

Now if only I could figure out this Hong Kong metro map.