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Those of us that have traveled for decades might remember when we needed to head to the bank to buy travelers checks before heading overseas. As that method started to fade away, the new best way to get local currency overseas was to carry large amounts of US dollars to convert at banks or at an airport kiosk upon arrival.
Until just a few years ago, carrying US currency was still the way to go for some countries such as Argentina. Now, I’m unaware of any popular travel destinations where this is still the way to go (let me know in the comments below if you know of any!). Of course, we’d still recommend carrying some US$ to exchange in case your debit card is compromised. But, generally, there’s no need to carry currency with you overseas.
Now, it’s easy to get a no-foreign-transaction-fee credit card to earn miles/points on most overseas purchases. For countries where cash is still king, you can sign up for a Schwab or Fidelity checking account to get no-transaction-fee cash withdrawals. There’s no need to worry if the ATM charges you a fee to withdrawal cash; these banks also reimburse that fee. I’m currently traveling overseas full-time now, and my Schwab Investor Checking account has made getting cash a no-brainer in each country I visit.
United Miles From Travelex
So, where does this leave companies that base their business off of people converting cash? Well, doing gimmicky promotions.
Currency-exchange service Travelex just partnered up with United to offer bonus MileagePlus miles to members that order foreign currency online. The deal: Earn up to 1 United mile per $1 exchanged and get 1% off your purchase. You’ll earn 1 MileagePlus mile per $1 exchanged for purchases over $500, but just 1 mile per $2 exchanged for smaller purchases.
Free miles and discounts on foreign currency sounds like a tempting deal at first. But, let’s run the numbers. Yesterday, I withdrew ¥10,000 from a convenience store ATM. The transaction posted to my Schwab account as a withdrawal of $89.04. Let’s plug ¥10,000 into Travelex:
Even before delivery fees (which tack on at least $9.99 at this purchase rate), we’re already having to pay $11.38 more in order to get 50 MileagePlus miles. That’s a purchase rate of 22.76 cents per mile, which is well above TPG’s 1.5 cents per mile valuation for United miles. Not to mention that the foreign currency will be delivered a few days out rather than being able to withdraw it on the spot overseas when needed.
So, it definitely doesn’t make sense for a small purchase of currency. But, let’s say that you don’t have a Schwab or Fidelity account already and you’re about to leave for an overseas trip. Does it makes sense then?
Let’s run with the example of wanting €1,000 in currency for an upcoming trip to Europe. At this purchase rate, Travelex is going to wave shipping costs and give you 1 United mile per US dollar spent.
Travelex will charge your credit card $1,252.84 for €1,000 of currency and 1,266 United miles (worth $18.99 per current TPG valuations). If you you put this on a Blue Business Plus Credit Card from American Express, you’ll also earn 2,506 Membership Rewards points from the purchase (another $47.61 of value per current TPG valuations).
If you value United miles and Amex points at the same value we do, you could see this as paying a net of ~$1,186 for €1,000. Considering the spot foreign conversion rate of €1,000 is ~$1,164, you’re not giving up much value using Travelex.
For reference, Bank of America checking and savings customers have the option of ordering €1,000 from their checking/savings account for $1,215.70. Note that you’d have to swing by the bank to pick it up as the value is over $1,000. Other banks are going to charge around the same rate for processing foreign currency for their customers while stateside.
What about just waiting until you’re overseas and withdrawing cash from your bank? Ignoring any additional fees that the ATM would charge, your bank is likely to charge a 3% foreign transaction fee and a ~$5 transaction fee. If you withdrew the same €1,000 as 5 withdrawals of €200, you’re account is going to be hit for ~$1,224.
This isn’t a bad option. You’re paying just a few dollars more for the convenience of not having to carry large amounts of currency with you and for not having to deal with a bank stateside.
Bottom Line
If you’re a frequent overseas traveler, sign up for a Schwab Investor Checking account or Fidelity Cash Management Debit Card. If you’re not a frequent traveler (and/or don’t want a new bank account) or you’re about to depart and can’t set-up a bank account in time, check your ATM overseas withdrawal fees and rates. For the simplicity of making a few large cash withdrawals when needed, it might make sense for you to just withdraw cash as needed during your trip.
However, using a promotion like Travelex’s promotion with United could make sense if you have a high-yield credit card, don’t mind carrying large amounts of foreign currency with you as you travel and have a high-value use for your miles.
Source: thepointsguy.com