Travel money: Cash, cheque or plastic?

Once upon a time, Canadians travelling to foreign destinations had little choice when it came to money. It was travellers cheques or nothing.

Not any more. Today, the monetary choices for vacationing can be baffling. Credit card, debit card, travellers cheques (still a worthy option), cash — which is the best deal? It’s a hot topic because, with our sagging loonie, you sometimes come away from the foreign exchange wicket feeling you’ve been mugged.

While we can’t turn your puny dollar into some Herculean currency, depending on the choices you make, you could have hundreds of extra dollars to spend on the things that really matter.

Even in Canada, currency exchange rates are all over the map.

Example: pound sterling
Take the example of the British pound. As the table below shows, you could have paid anywhere from $2.40 up to $2.58, plus a commission, depending on where and when you buy. You can bet the same variations apply to whatever currency you’re changing.

Thomas Cook (airport)

$2.58

$5 up to $250

Thomas Cook (downtown)

$2.48

$2.75 up to $500

Friedberg currency trader

$2.44

$3 up to $500

TD Visa

$2.43

None

Bank of Montreal MasterCard

$2.40

None

American Express travellers cheques

$2.46

None at American Express, 1 per cent elsewhere

Rules of the game
A quick glance at the table will help you understand the rules of the game.

• Never exchange currency at the airport (except in the direst emergency). Our informal survey showed you would pay a hefty 10 cents extra for a pound at the Thomas Cook Toronto airport location compared with its downtown offices.
  
• Commissions were lower downtown, and Thomas Cook waives those commissions for seniors on Tuesday — though not, mysteriously, at the airport.

For comparison, we tried Friedberg’s, an independent currency trader, and found their rates were another four cents lower than Thomas Cook downtown (although they don’t have a seniors’ day).

The advice from Michael Zobin, of Friedberg’s: "Shop around for the best rates, just the way you’d shop around for a pair of running shoes. Don’t assume currency rates are etched in stone."

• Our table also reveals that although many Canadians still like the security aspect of travellers cheques, the advantage now is undoubtedly with plastic. So the biggest financial decision most Canadians must make when going on vacation is which system to opt for. The answer? A mix.

"Everyone has their own comfort level," says Paul Nestorwich, director of foreign exchange for Thomas Cook. It starts, though, with having some local currency in your wallet when you arrive.

"After seven hours on the plane to Paris," says Nestorwich, "the last thing you want is to line up at an airport currency exchange bureau."

Carry destination currency
He suggests buying about $200 of your destination currency before leaving Canada so you’ll have enough for a taxi and maybe a meal, giving yourself time to orient yourself and locate a machine where you can use your bank card.

• Travellers cheques, he admits, are a "mature" product — meaning their glory days are past.

"But it’s still a good idea to have a few hundred dollars in travellers cheques — in case the automatic teller machines (ATMs) crash, or you can’t use your credit card."

• Also, should your money and cards be stolen, the cheques are a good insurance — you’ll get them back (but be sure to keep your receipt separate from the cheques).

They can be an expensive insurance. Veteran Toronto Globe and Mail travel writer Doug McArthur says he’s seen commissions as high as five pounds (about $12.50) charged in the U.K. for cashing travellers cheques and foreign banks commonly charge a usurious two per cent commission.

Avoid paying commissions
Some bank and credit unions, especially if you have one of those golden accounts, waive the usual one per cent commission on the cheques in Canada, and they’re also commission-free if you buy or cash them at Amex or Cook’s offices.

• To avoid the foreign bank sting when cashing them, use the cheques to pay bills in restaurants and hotels where you’ll get the change in local currency.

Today, though, you can’t really beat plastic — for security as well as a good exchange deal. When you use your credit card outside Canada, you’ll be billed back here at the exchange rate operating the day the bill was processed at the bank.

The Toronto Dominion Bank (TD), without going into details, says transaction fees are built into its Visa exchange rates. Bank of Montreal says there are no exchange charges for its MasterCard, which may explain why, in our table, the MasterCard exchange rate was three cents better than Visa’s.

Debit cards
You probably won’t be able to use your debit card to make purchases, even in the U.S., because the Interac service we’re so familiar with in our grocery stores is not nearly as pervasive elsewhere as they are in Canada. You will, however, be able to use the card at appropriate ATMs — those bearing the same logo as your card — to make withdrawals from your account in the local currency most places in the world, usually with a daily limit of between $100 and $600.

Typically, the TD Bank imposes a $2.25 fee for each foreign withdrawal (plus any regular transaction fee you pay at home), and Bank of Montreal charges $3.50 in the U.S. and $4.50 overseas.

It’s a good idea to check your withdrawal limit with your bank before leaving, increasing it if necessary. And don’t forget to take along your PIN (personal identification number).

• One technique we’ve used to avoid paying interest on an unpaid balance on our credit card is to deposit money before leaving to allow for bills that arrive in our absence.

Thomas Cook’s Paul Nestorwich advises you get familiar with the money of the country you’re visiting before your departure. That way, you won’t be palmed off with the local equivalent of Canadian Tire money.

• And avoid black marketeers who may sell you outdated currency or even similar-looking but nearly worthless currency of another country.

Nestorwich also believes you should get a rough idea in your head of the value of the currency — a French franc, for instance, is worth roughly 22 cents, while a shocking price tag of 100,000 lire in Italy is, in fact, only about $75.

Some people use a calculator to figure out foreign prices, but Nestorwich says it’s less trouble and less conspicuous to make up a little card with local currency equivalents and keep it in your wallet.

Zobin, at Friedberg, advises against buying American dollars in cash or travellers cheques just to switch them to another foreign currency when you get there — you risk paying a double exchange penalty.

• Better to buy the local currency here.

Loonie respected here
Possible exceptions:

• Spain and Greece, which pay better rates for the Canadian dollar than some of their neighbours.
  
• Our loonie still gets some respect in Australia, New Zealand and Japan.

Elsewhere in Southeast Asia, though — especially in countries like Malaysia and Indonesia, which have recently experienced economic turmoil — U.S. dollars are the currency of choice.

Foreign bank accounts
If you’re planning on being away for three months or more, Zobin says you can bypass a lot of the costs and red tape by opening a bank account abroad. There’s nothing illegal about it, though you should check on the service charges. And some countries, like France, make it extremely difficult to open an account.

Many snowbirds, says Zobin, purchase American dollars here and transfer them to their accounts down south as a hedge against volatile dollar rates.

• Another twist: the Dutch electronic banker ING offers no-fee U.S.-dollar accounts that pay a handsome five per cent on deposits — much better than you’d get in a U.S bank. Because of the bank laws, you can’t use your card to withdraw the money in the U.S., but you can make U.S. fund withdrawals at Canadian Tire ING machines or get a draft in U.S. dollars to take with you.

Worth a check!