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 are not good options as they may charge you up to 25% in fees despite advertising no or low fees.
  • 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 and Hotels

Remember three words: Absolute Last Resort. All larger airports and many hotels have desks that will exchange your money for the local currency, but it’s going to cost you. You might pay more than 25% in fees. Don’t be fooled by signage indicating no fees. They simply mask the fees in other ways. Say no to airport and hotel currency exchanges.

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 to 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

About a week before you leave, call your bank and tell it how much money you want to exchange. A few days later, head to the branch, pick up your money, pay the fees, and you’re all set.

Of course, the fees could be $10 or more depending on your bank. On one day when the dollar was at 1.0604 against the euro, Wells Fargo offered an exchange rate of 1.1146—roughly 5.1% higher. It also charged a $15 shipping and handling fee.

Wells Fargo cautions that rates advertised on financial media are wholesale rates based on $1 million lots. Simply put, the 1.0604 rate isn’t available to retail customers.

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!