Money Matters – Cash Management Abroad

Rather than regale you with the gripping tales of us grocery shopping in Sydney, refilling our propane, playing catch up on boat schooling, or trying to get our heads pumped out, I’ve decided to take a few minutes to answer a question I see a lot on the various cruising groups and forums. Yeah, I’ve some road trips to write about too, but this post has been percolating in my head for a while. If I write this, I can just link it the next time someone asks.

That question is, in some form or variety:

“What is the best bank to use when traveling abroad”.

The flip answer, of course, is “Well, that depends on where you are going.” Though that is technically correct, it’s not a terribly useful answer. So what I will do is talk a little bit to what we’ve experienced, what we do, and how we do our best not to let our cruising kitty get devoured by rapacious banks.

I’m going to try and avoid slamming any banks too hard, or making endorsements, but it’s hard not to when dealing with what we are actually doing. Oh heck, I’ll just speak frankly…

For us, one of these things is not like the other!

Fees, Fees and More Fees

Your bank, of course, wants to make money off you. They’ve devised a number of fees they clip you with when you try to get your own money from outside the U.S.

Some fees above and beyond your account maintenance fees include (but are not always limited too):

• Foreign currency fees. These will show up at ATM withdrawals and on some credit cards, and typically run 1%-3%. Usually closer to 3%.
• Foreign ATM Fees. A special charge that some banks seem to add when accessing an ATM outside the U.S.
• Out of Network ATM fees from your bank. Fee for using an ATM not owned by your bank or a partner bank. Anywhere from a buck up to $3.00 or so.
• Out of network ATM fees, from the bank that owns the ATM. The local bank may also assess you a fee for using their ATM that is passed back and charged to your account that is above and beyond your own bank’s fee. These may be higher than your own bank charges you, up to five or six bucks.

If you aren’t careful you can rack up some or all of these fees in a single transaction. Once in French Polynesia I withdrew around $200 USD in local currency…and got charged over $20 USD in fees by my bank for the privilege. Bad choice, back when I used a bank that rhymed with “Santander,” which is one of the worst banks to deal with outside the US for fees. Even though it’s not an American domestic bank, which is weird.

I’ll get into how to minimize these fees later. But you REALLY need to talk to your bank and read all the fine print on our checking accounts, savings accounts and credit cards to see exactly what all these fees are so you can avoid them. Or change banks on general principle (see “Santander”).

The FX Game (Foreign Exchange)

Fees are not the only way you can take a financial hit when dealing with your U.S. based, U.S. Dollar denominated accounts abroad. You will want some local cash no matter where you are. Even in a place like Australia where almost every place uses credit cards, it’s handy to have cash. But in the more remote places there aren’t so many places that take credit cards, and some of them add surcharges if they do (I’m talking to YOU, Fiji). And if you can use a credit card, should you?

We’ve found the best exchange rates on local currencies are generally gotten by pulling cash directly from the ATM or using credit cards. You tend to get the rates most closely quoted for exchange – though you don’t quite get those since the rates you see in the paper or on financial websites tend to be for bank-to-bank transactions for a lot of money. You won’t get the same rate charging $12 AUD for coffee, but you will generally get a better rate than an airport money changer or the rate that may be offered to you if you wish to pay in USD even though you are in a foreign country. Avoid those rates at all cost; I’ve yet to see an option to “Pay in USD” that wasn’t a ripoff based on current rates.

But you CAN get much worse rates if you want. For example you can go to a money changer, where not only do the rates sort of stink, but they frequently have fees if you don’t exchange very much cash. They may have a big neon sign that says “No Exchange Fees,” but it turns out to be for only amounts in excess of $1,000. Now, if you are a Santander customer and will be getting hammered with every fee in the book, these may be a better option than using that ATM. But in most cases if you are careful your own ATM will be better. Of course, those places only really work out for you if you have a pile of greenbacks to exchange in the first place. After a few years out of the U.S., we have next to no American currency on board since there is really no use for it once you get west of the Galapagos.

You can also change money at banks…some times. In some countries (like Australia) you can’t just walk into a bank you don’t have an account with and change money. But if you can, the rates and fees will usually be better than the Exchange shops.

Ducking and Dodging the Fees

A major objective of your cash management life becomes “How can I not get hammered by all these stupid fees?”

Good Credit Card Choices

There really is an easy answer – get a credit card that doesn’t charge any foreign transaction fees and use it to pay for everything you possibly can.  We have a Capital One QuickSilver World Elite Master Card, and a Bank of America Travel Rewards Visa. Both of these cards offer ZERO foreign currency fees or foreign transaction fees. So you get cards like these, or others like them, and you charge everything on them. Some cards even offer rewards; the Capital One rebates 1% on everything. So if you spend $25 AUD on lunch, what hits credit card with no extra fees is $25 Australian, converted to US dollars at that day’s rate. No fees, no fuss, no mess, and you get 1% of that back.

In places like Fiji where many places add a 1-2% surcharge for credit card use, you still end up ahead charging it if the surcharge for credit is less than what your bank charges you to pull cash out of your account. A 2% surcharge on a credit card with a 1% rebate is still much cheaper than paying with cash that the bank charges you 3% to withdraw.

And American Express…don’t leave home without it, but don’t leave the U.S. with it. Few people take it and their international fees are very high unless you have one of the premium cards – Platinum, etc. But half the world doesn’t accept it anyway. The only use we have for one is paying for things in the states.

Networked Banking

Banking is where the “bank local to bank cheap” argument tends to break down. Many local credit unions and savings and loans have great checking and savings programs if they are in your town. But they aren’t really well set up for the international traveler, since they don’t often have large networks of ATMs you can use for free.

Unfortunately, this has dragged us into world of being megabank customers. In our case, it’s Bank of America, affectionately known on board Evenstar as “Bank of Vader”. But in fairness to Bank of America, in spite of their ever changing terms of service on their cheap bank accounts, they have a few nice products for the serious international traveler.

We first opened a BoA account in the Caribbean. At the time we were still with Santander (Motto: “But our International Fees are Really Obscene!”) and getting hammered left and right every time we took out cash. We were charged a “Foreign Currency Fee” to withdraw U.S. dollars from an ATM in the BVI’s. Yup, 3% “conversion fee” on those $20 bills with Andrew Jackson’s face on them coming out of the ATM.

A friend told us that Bank of America had a deal with ScotiaBank, which has a presence through much of Caribbean (except the French islands…). The deal was great – you could use ScotiaBank ATM’s with your BoA ATM card for free, like you were banking in the U.S. No foreign currency fees, no transaction fees. We applied for a free “eBanking” account, transferred some money in, and off we went. By the way, that free eBanking account doesn’t exist anymore, but they still have a free account with a $1,000 minimum balance you can get.

Bank of America is part of several international networks of banks, and has cooperative deals in many countries which eliminate ATM fees. They still usually charge a 3% currency conversion, but the elimination of ATM fees is huge. CitiBank also apparently offers some similar arrangements, as may other larger banks. But it’s worth a call to your small, local bank to find out about fees, and also exploring at least one account at a larger, networked bank.

The trick then is to find out what local banks you can use, and stick to using them. We only pull money from BoA in Australia and New Zealand using Westpac ATMs, for example. The savings add up…though we still use fee-free credit cards as much as we can!

Brokerage/Investment Houses

Institutions like Fidelity and Schwab also have nice programs for foreign cash access. Our Fidelity account “rebates” all ATM fees and only charges 1% on foreign transactions. This has the advantage of lower fees and the ability to use any ATM without getting hammered. The only disadvantage I’ve found is that transfers in and out of the Fidelity account take a day or two longer because it’s not, strictly speaking, a bank account. So you need to plan ahead a little more if you don’t keep a big pile of cash there.

Bouncing your money around the world

This all sounds like a bit of a juggling act, and it is. All of this is because we have U.S. based accounts, denominated in U.S. Dollars, and we have specific accounts for specific purposes because of fee structures. The one thing you have to get used to is the concept of making sure your money is in the right place, at the right time. Nothing is more annoying than having plenty of money but in the wrong place when something comes due. But e-banking and banking Apps on your phone are your friend for this.

We keep a free checking and savings account with the brokerage we use. This is handy, because if we sell an asset or get dividends in an account we can transfer the proceeds instantly. Otherwise it takes 2-3 days to move from one account to another between banks.

Those brokerage company checking/savings accounts are used to pay the credit card bills and the few bills we have. As mentioned, we charge as much as we can because it is by far the cheapest way to pay for us, so most of our spending is handled in the credit card payments. Keeping all payments in one place, while using the other accounts primarily for ATM access (BoA and Fidelity) or purchasing (the credit cards) makes it much more simple than it sounds.

That brokerage/bank combination also affords us a bit more nimbleness than we had before we made that move. It could take a week or more to get a large block of money moved from point A to point B if it was tied up in something that had to be sold (like a mutual fund) and cleared at a brokerage before it could be transferred. Having the bank account with the brokerage means the cash is available as soon as the sale “clears”, instead of needing three more days to transfer it to another bank after it clears. The free transfers we have available with these accounts, combined with automatic bill payments make it all simple and cheap to do.

Putting it all together

To summarize, we use a combination of big banks, specialized international credit cards, and banks linked to our investment accounts to minimize our fee exposure and make moving money easier. We keep:

• A checking and savings at our brokerage for paying bills. The ATM fees are horrible on international fees so we don’t use it, but the transfers in from brokerage accounts are instantaneous, which is a time saver. And transfers in and out are free.
• A checking account and fee-free visa at Bank of America. This gives us 3% fee withdrawals at partner banks and fee-free credit card purchasing.
• Capitol One credit card. More fee-free credit card usage.
• Fidelity Cash Account. 1% ATM withdrawals anywhere. We don’t use this enough…but maybe we misplaced the card for a while.

Did I mention that charging everything on international fee-free credit cards is really the cheapest way to get to your money? I hope I did…