Now that spring break has come and gone for most travelers, many people are looking ahead to their next big trip this summer.
Whether it’s a college graduation trip across Europe, a honeymoon to a tropical locale, or a summer studying abroad, it’s important to do your homework and know the best ways to pay.
Many of these major milestone vacations can come with costly accommodations. After all, you are celebrating. Next to airfare, booking a hotel or home rental is probably the next step in vacation planning for most people.
A lot of honeymooners choose to spend their time away as newlyweds at a resort, many of which offer honeymoon packages that include airport transportation, suite rooms, meals, spa treatments and activities. For international travelers, this can be an easy way to make one large payment and not have to worry about spending while you’re enjoying a trip of a lifetime.
Most resorts require a 50% payment up front. Home rentals can also require a majority of the costs paid before the actual trip. While it might be tempting just to type in your credit or debit card info and make the payment, swiping plastic for your trip planning can sometimes lead to international transaction fees and exchange-rate mark-ups.
How to pay before you go
Many credit and debit cards charge foreign-transaction fees of about 3% per transaction. This is the first thing to avoid when making a large international payment for an upcoming trip. Cards that don’t have foreign-transaction fees are best for international travelers, however, they may have an annual membership fee instead.
The next thing to avoid when making that home rental or resort deposit is paying in USD. While it may seem convenient that they are allowing you to pay in USD, there could be some hidden costs in the invoice to cover converting your payment to local currency. By paying in USD automatically, you have limited visibility to the exchange rate the vendor is using. This is called dynamic currency conversion. If possible, always ask to pay in the local currency.
Now that you have a credit card without foreign-transaction fees and you have a bill in local currency, you might think you are all set to pay for your vacation. Well, yes and no.
While this is a big improvement from where you started, paying in the local currency with a credit card without foreign-transaction fees can still expose you to exchange-rate risk. The card company will need to convert your payment back to USD for your statement, since your account is in the United States. Credit card companies charge their own fixed daily exchange rate and it is usually different than the market rate at the time of the transaction. The rate is set by Visa or Mastercard, but then the individual card issuers (Ex. Chase and Capital One) might round their exchange rate to fewer decimals. Once the conversion takes place, the card issuer also has to round the USD result to the nearest penny. Some card issuers also use day-old rates to convert purchases, so travelers have limited visibility to what rate is used until they get their monthly statement. Adding to the confusion, some merchants may not submit transactions the same day you make the purchase.
Luckily, there can be a better way beyond using a credit or debit card to make large international payments.
Using an international payments company like WorldFirst can help cut back on fees and give you more visibility on the exchange rate. With WorldFirst, customers can get rate alerts to monitor exchange rates and make the payment at a time when they like the exchange rate the most. The exchange rate of the transaction is based on the live market rate at the time the customer wishes to lock in their transaction.
Travelers then transfer the payment from their bank to WorldFirst in USD and WorldFirst converts the money at the selected rate to the destination country currency. The payment is then transferred to the bank account of the resort or rental owner.
By taking the time to monitor the exchange rates with WorldFirst, customers can sometime save hundreds on vacation payments.
For example, say you are going to rent a house in the South of France this summer and it costs €8,000. If the hypothetical EUR/USD exchange rate through an international payments company is 1.23, that means it will cost you $9,848. But if the bank or another provider is using a daily exchange rate of 1.25, it will cost you $10,000 total – $152 more.
The lower exchange rate can be even more beneficial when making even larger payments like a study abroad tuition or room and board.
Paying during your stay
Once you are on the ground at your destination, there are some ways to pay that are better than others.
We’ve already discussed the downsides of using a credit card with foreign-transaction fees and paying in USD. These also apply to payments while on your trip. Using a credit card without foreign-transaction fees and paying in local currency is the best option while you’re spending money during your stay.
Converting USD cash to the local currency ahead of time and carrying large quantities of cash can expose you to theft and it can’t be replaced like a card. You also won’t get as favorable of an exchange rate, according to a 2017 WalletHub Currency Exchange Study.
Using a credit card without foreign-transaction fees saves travelers 6.77% compared to converting $300 to euros through a bank or credit union. Converting $300 to euros at Travelex, a popular currency conversion service at airports, would cost travelers 8.86% more than using a card.
However, you will probably need cash at some point during your trip for tipping or something small, so it is wise to also bring a debit card with low international ATM withdrawal fees. You can get cash out as you need it, limiting the amount of time you have cash on you and still taking advantage of the favorable exchange rate.
No matter what you are celebrating and where you are traveling to abroad this summer, it is important to take the time to do your homework. Look up the exchange rate and see how much of your stay you can pay for up front with an international payments company. Then, when you get there, you can just enjoy your vacation instead of constantly monitoring your spending.