Travel Currency Strategies: When Cash Beats Card and Vice Versa

I have small skills for managing money on long into a trip and they save a lot of money in the end. For managing currency, the simple rule of thumb is to know the simple rules for countries as you travel. And the smarter rule of thumb (which is what I have found to be a good rule after tracking out cash / card usage over years) is to learn the simple rules for a few countries and then apply those simple rules deliberately.

Card-friendly countries

To clarify here are a few countries where you’ll find most tourist services, i.e. restaurants, shops, bars, are card-friendly, so need no foreign transaction fee-enabled card to use for 95% of spending: Sweden, Norway, Denmark, Singapore, South Korea and much of Hong Kong. With the odd market vendor and some places you may feel inclined to show your appreciation in cash for service then of course you’ll need some local cash but bear in mind to bring as little as possible and spend as much as possible before crossing a border and re-loading the excess cash in local currency at a branch or main bank ATM rather than airport, tourist corridor or general ATMs as Dynamic Currency Conversion (DCC) is rife to charge yet higher non-InterBank, cash/ATM rates at non-bank locations and DCC here’s ALWAYS to be always selected to pay in local currency of ATM owner (not your home currency! and when DCC prompt for choice do NOT select home currency which you’re led to believe is what you’d like! though obvious!! as you’ll then always get poor, non-market (retail) exchane rates vs interbank/market). Now read previous for cash-friendly locations.

Cash-friendly countries

For countries that are more cash friendly (Germany, Japan and more), many businesses will accept cash over card and even prefer it. As a result, you want to have larger cash floats on hand for day to day spending. You’ll also want to make sure to take cash out at a bank branch, not at an airport or tourist corridor ATM. The major gotcha with taking cash out on the road is dynamic currency conversion (DCC) – always select to be charged in local currency, never in your home currency.

The right way to exchange currency

Of course, there are many, many ways to do currency management. But I want to cover most of the common ones. First, there are the ways to change money that are truly awful. Like the currency exchange counters in airports. Just don’t do it unless you have a huge amount of cash and need local currency immediately. Next, there are ways to change money that are good, and one of the best is withdrawing cash from an ATM using a no-foreign-transaction-fee debit card (Charles Schwab is a great option here). Not only do you get a very good exchange rate, but you also get to have your fees (if any) refunded. After that, there are the foreign transactions on your credit cards. The rate will be good, but you’ll pay a foreign-transaction fee (typically 1% to 3% with most cards, zero with travel cards). The decision of which to use depends on you, and what your goals are for the foreign transaction. On my last trip, I did a lot of foreign transactions on my Citi Premier Card because it didn’t have a foreign-transaction fee. This is how I actually do currency management, now.

The daily cash float

A daily cash reserve is needed for certain places, and for some things cash is better than a card, but the amount to bring is very important as well. I carry about 1 to 2 days worth of cash on me, the rest I store in the hotel safe or in a locker. My rule of thumb is that a lost wallet would cost me about $100 in time and other expenses to replace, but a lost wallet with all the cash for a trip would cost me the whole trip! That’s a big difference. That’s the rule I go by and it has served me well.

End-of-trip currency

One other thing about currency that tourists don’t know about are the residual amounts of cash left at the end of a long trip. Even the more seasoned of back packers underestimate the exchange rate of currency into another country that they will travel to shortly after returning home. One can cash residual amounts of a country’s currency (under $50) that are left at the end of a trip in airport currency collection boxes for charity. These areas are normally located in areas of airport terminals where tourist are waiting for their flights to depart. The tourists that can cash residual amounts of money for charity that are left at end of a trip are truly smarter than all of the rest of tourists.

How to think about the real cost

On long trips, flight, hostel, and other travel costs are often reported in “headline price” form—e.g. the cost of a given flight, or the “genuine” price of a budget hostel. This can be misleading, since a given travel expense can include a host of add-on “fees,” “surcharges,” etc. But, even if one has a general sense for all of the fees, etc. that have been added on to a given travel expense, the latter will still likely to be greater than 120% of the reported price. In other words, flights, hostels, etc. are best priced by first getting a sense of the “headline” prices for given types of travel, and then working from there. One of the biggest mistakes made by low-cost travelers is to underestimate by 20% to 40% or so the total amount of cash required to take a given trip. Such “overspending” can add up quickly, since small errors in this regard are made on a daily basis. But the real killer is that the amount of “overspending” required to take a trip in this manner is not apparent until well into a trip (e.g. after a week or more), at which point the costs of the second half of a trip are extremely difficult to keep within bounds. Thus, the single best way to keep costs in check on long trips is to make a formal plan for how the funds for a given trip will be spent, and then to track the funds spent on a daily basis against that plan. Reconciling (i.e. comparing) the funds actually spent on a given day against the funds allocated for that day in one’s formal plan for the funds required for a given trip should take only 5 minutes or so per day, and should prove to be an effective way to keep costs in line on trips of length 7 days or more. The implication here is that, when all is said and done, there is more to “cheap travel” than simply traveling on a “tight budget.” While, no doubt, much can be saved by keeping costs in check in this manner, the most memorable trips of a lifetime are not typically those that were conducted in this manner. In fact, the really memorable parts of such trips are often the splurges, and the cost of these latter items need not be greater than that of the other, more budget-oriented, aspects of a trip. In the end, it is the slow accumulation of excess expenses that prove to be the real budget-busters on long trips.