How to: Tips on Getting Cash while on Vacation in a Foreign Country

It is crucial to effectively manage your budget and spending habits while traveling in a foreign country, although you do want to have more than enough cash to have a good time and still take care of emergencies.

Knowing how to properly get and use cash money and how to purchase items and services when traveling in a foreign country can save you a lot of money and make your trip less frustrating. There are many methods to withdraw some cash while in a foreign country and some methods cost more than others. Some ways to get cash in a foreign country can be frustrating or dangerous.

I have lived in and traveled to several foreign countries for years and have determined the best ways to get cash and manage money while traveling in a foreign country.

This article is geared toward those traveling in a foreign country, for those who are living or wish to live in a foreign country, the strategies for getting and saving cash are different.

Forget travellers checks. They might have been useful years ago, but now with ATMs available almost everywhere and the instantaneous electronic linking of banks world-wide, travelers checks have become cumbersome and obsolete.

Use your ATM card. Look on the back of your ATM card and make sure it has either the PLUS logo or the CIRRUS logo. Most ATMs world-wide accept both of these systems. When you arrive at the airport or train station of your new country, go to the nearest ATM and withdrawal cash.

The advantage of this method for getting cash as opposed to the currency exchange booth is that you will get a much better exchange rate.

The disadvantage is that you may have to pay an ATM fee. Also, before you travel, ask your bank what fees will be levied against your card for using an ATM. For example, VISA charges a 1% fee for all cash you withdrawal from a foreign ATM.

In my experience, the fees you pay at the ATM are not nearly as much as the fees at a currency exchange booth, especially ones at an airport. Currency exchange brokers at an airport charge a very high rate because they know that travelers entering their country need money. By searching around town and paying attention to the rates at other, off-the-beaten-path brokers, you can find a much better rate.

If you can properly manage your money during your trip, however, you may never need to go to a currency broker.

A few words on exchange rates. An exchange rate has two prices. The Bid price, or buy price, is the price at which you buy a currency. The Ask price, or sell price, is the price at which you sell back the foreign currency. The difference between the two is called the Bid/Ask spread. The "tighter" the Bid/Ask spread, meaning the closer together those two prices are, the better exchange rate you are getting.

Let's say the currency of Country X is trading at a rate of $1 (US Dollar) = 1.49/1.51. If you have $100 and you want to buy X currency, you will get 149X. If you were to immediately sell back that money to get dollars again, you would not get back your full $100, because you only have 149X and you need 151X to get $100.

Don't be confused if you see a rate expressed the other way around, meaning 1X = $0.66/$0.67. In this case, the Bid/Ask prices are the opposite of the first example. If this seems confusing, just remember that when doing your calculation, whichever number results in you getting paid less money, that's the correct number. In addition, some brokers might even charge you a high flat fee just for using their services.

In the above example of $1 = 1.49X/1.51X, the Bid/Ask spread is 2 cents. At an airport you might see an even worse spread, i.e. $1 = 1.40X/1.60X. In this case, a 20 cent spread is horrible and you will be giving the broker a lot of your money.

Banks trade currencies with other banks around the world all the time, and they exchange millions of dollars with each other. The banks give each other a good rate. This is called the Interbank Rate, and it might look something like $1 = 1.4999X/1.5001X. In this case, they are giving each other a one-thousandth of a cent spread. When you use an ATM or credit card, the bank is passing along to you this very good exchange rate.

If you use your VISA card or VISA ATM card, you will be charged 1% of however much money you spend or withdrawal. Call your bank to make sure the bank is not tacking on an extra percentage. A good bank should not charge you any extra percentage to take out money at an ATM.

However, some bad banks might charge an additional 3% on top of what VISA charges. If your bank does this, and you travel a lot, then you need to switch banks. If you don't travel often, then you can probably suck up the extra cost for one short trip.

Foreign countries do not use or accept credit cards nearly as much as in the U.S. In the U.S., I will charge a 50 cent cup of coffee to my credit card. In most foreign countries, you can use your credit card at big chain stores and fancy restaurants only. For anything local, they will not accept it. You will need cash. When going to the ATM, try to anticipate how much money you will need over a given period of time and withdrawal the maximum that you are allowed. This will minimize the affect of the ATM fee, if you are charged one. In addition to the ATM's fee, your home bank might charge you a flat fee each time you use a foreign ATM.

This is even more reason to go to the ATM as few times as possible and withdrawal as much money as possible. If you don't feel safe carrying around that much cash, you can lock it up in the hotel safe. Your personal safety is not part of this article. This article is only about how to get the most bang for your buck when changing money in a foreign country.

Try to anticipate exactly how much you will need. Use you credit card when you can. If you over-estimate the amount of cash you need, you will be stuck with the foreign currency. If you know you aren't going to be revisiting that country anytime soon, you will need to visit an exchange broker to get U.S. dollars back and you will lose some money on the bid/ask spread.

Before leaving for your trip, take a look at the historic exchange rate of the past month or so. This website provides a chart for many currencies: www.x-rates.com. People can win or lose a lot of money with currency exchange rate speculation.

As a traveler, you shouldn't play that game, unless there is a very obvious trend. If the foreign currency is going in a clear path from bottom left to top right, then you can assume it will continue to increase and you should withdrawal as much money right away as you can.

If it is in a obvious path down, then you can wait to withdrawal a larger sum of money until a day when the rate is lower. To do this, you must pay very close attention to the daily rate. If you don't feel comforable with this method, don't try it, you won't save yourself that much money by doing this, but you can save some.

The only time I would recommend getting the foreign currency while you are still in the U.S. is if you are going to a place where you know there will be no facilities for getting the currency as soon as you arrive at your destination.

For all main locations of tourism, you can find an ATM waiting for you at the airport. When you are out and about on vacation, be careful not use any ATM that is stand-alone or looks like it has a false front. These might be fake ATMs set up to take your money. Use only ATMs that are installed in the side of a brick or concrete building or inside a bank or airport.