If you’re traveling abroad, local merchants probably don’t want your U.S. dollars. If you did not exchange money before leaving, after unpacking and settling into your hotel, exchange your American money for the country’s local currency, but do it the right way. Here are your options.

Key Takeaways:

  • Exchanging dollars to a local currency can be costly, depending on the fees charged for the service.
  • Airport and hotel exchange desks typically charge higher fees than the financial institution you bank with.
  • The best option is to use your credit card while you are traveling and to withdraw money at a foreign ATM, if you can, to obtain cash.
  • Other options include using a Travelex card or exchanging money at your local bank before you leave.

1. Airports

The first place nearly all travelers arrive in a new country is the airport terminal, and that is the first place where you will have an opportunity to exchange currency. The airport currency exchange rate isn't always the best. Why? Because airport-based currency exchange shops know that you might need local currency to catch a bus, train, or taxi, so they make big profits offering you the worst exchange rate.

Verdict: Don’t do it!

2. Travelex Money Card

You might show your age, but if you remember traveler’s checks, the Travelex card is similar. If it is lost or stolen, it can be replaced. In addition, because the card is not tied to your bank account, thieves cannot use it to get your money. This card also takes the headache out of the process, because you can buy the card online as well as at Travelex stores.

The Money Card is a contactless card that allows you to load up to six currencies onto a single card or exchange one currency for another as you travel from country to country.

But you will pay for the convenience. The fee to purchase the card depends on where you buy it and will include an additional card fee of $7.50. Exchanging currency costs you the normal exchange rate plus 5.5%. If you want a refund of your balance, that will cost you $20, and if you don’t use the card for six months, the company charges $3 per month in inactivity fees.

Verdict: There are better ways to exchange your money.

3. Exchange Money at Your Bank

Almost all banks and credit unions provide foreign currency for their customers, however, typically you'll have to order the currency in advance. In some cases, your bank will waive the fee associated with this transaction. Bank of America allows customers to order up to USD$10,000 in foreign currency online over 30 days. The bank does charge a delivery fee of $7.50 for orders less than USD$1,000 but waives the fee for all amounts above that.

Contact your financial institution at least a month before your trip if you're considering using this option.

Verdict: Using your bank is not a bad strategy, and if you’re a high net-worth customer, the bank will likely waive all fees.

4. Debit Card

Depending on your bank, you may be able to take your debit card to an ATM in the country you are visiting and withdraw foreign currency for little or no fee. If you are a Bank of America customer and use your card at partner ATMs, you will avoid some fees you would normally pay. In fact, you may only pay a 3% transaction fee—much lower than other options.

Verdict: If you can find a partner ATM, this is a good idea.

5. Credit Card

Finally, the best option. There is no shortage of credit cards that offer a 0% foreign transaction fee. If you don’t have one, you probably won't pay more than 3%—still a good deal compared to other options.

Use your credit card for as many purchases as you can, but be prepared before you arrive. Most other countries use chip & PIN credit cards, but the United States still uses magnetic strip or chip & signature cards. Before traveling abroad ask your card issuer for a chip & PIN card.

Verdict: Do it!

The Bottom Line

The best option is to use your 0% foreign transaction fee credit card for foreign purchases and a foreign ATM to pick up walking-around money. If your bank card doesn't work in ATMs in the country you're visiting, order currency from your bank before you leave. Other options, such as currency exchange cards and airport kiosks, are expensive options. Try to avoid them!