Using Money Wisely in Foreign Countries

I have been travelling to a number of foreign countries recently and have gained some experience in trying to get the best deal for my money in a number of situations. I will summarise them here with a view to advising would-be travellers.

Changing Money

When in a foreign country you will need substantial amounts of the local currency. Unlike the United States, plastic is not widely accepted. Of course, personal cheques made on US banks aren't exactly popular either. There are a number of ways you can change US$ into local currency. Not all of the methods will exchange at exactly the current exchange rate because of exchange fees and because dealers offer poorer rates. In the following sections, I will list the different ways to change your money with the pros and cons of each.

Cash to Cash: Changing from cash to cash gives you the best exchange rate, however, usually at a high transaction fee. It is unclear to me why the transaction fee should be high at all for cash, but this seems to be the trend. The transaction fee may be a fixed amount or varying amount depending on the size of the transaction. Always ask about the fee before you change your money and then decide how much you want to change. In a cash to cash exchange, you may change any currency to the local currency (or even the currency of some third country). The risk is that you will be carrying lots of cash around, and cash in different currencies is just as palatable to a pickpocket as cash in the local currency.
Traveller's Cheques to Cash: It's time to explode the myth that TCs are your best bet to carry money around in a foreign country. Hardly. The exchange rate that you get for converting TCs is often poorer than the cash-to-cash rate. In addition, some exchange centres will levy a fixed or variable transaction fee. Always ask about the fee before you change your money and then decide on how much you want to change. Many a time, the American Express office in the foreign country will not charge a fee for changing AmEx TCs into cash, but will charge a fee for changing Thomas Cook TCs or other TCs into cash. Likewise, Thomas Cook may follow a similar policy. TCs are accepted only at exchange centres and large establishments who are willing to convert money, like 5-star hotels (read: poor exchange rate). However, TCs are burglar-proof and are a good backup plan even if you choose to spend money the other ways I suggest. They are a bit of a nuisance to carry around.
Credit Card to Cash: You can use your Mastercard or Visa to withdraw money from the many ATMs in Europe and the increasing number available in developing countries like India. You must know your pin code in order to use the credit card to withdraw money, so go prepared. You are dependent on the presence of an ATM nearby before you do anything in a strange country, but the exchange rate is the prevailing rate of the day. However, you are usually charged a small fee for making a transaction. Often, the good rate makes credit card withdrawal more attractive than other options despite the fee. Go to ATMs in well-lit and crowded areas and hold on to your plastic safely.
ATM Card to Cash: This is the best way to change money. The rate is the prevailing rate of the day, and the transaction fee is usually limited to the nominal amount banks charge when you withdraw from an ATM not their own. The downside is that not many ATMs in foreign countries may accept your card. If you have a debit card (usually, these double as ATM cards and can connect to the Visa or Mastercard network), you're all set. Once again, ensure that you withdraw from a safe ATM.
Talent to Cash: This involves possessing a modicum of artistic talent. In many European cities, you could set up stall and sing, paint or play music at impromptu public concerts. Locals and tourists (especially tourists!) are apt to fling large sums of money and unusable change into your bag. Added up, this money will buy you food for sure. Think about it... it means carrying your messy paints or your guitar around, but it may well be worth it.

In general, changing larger amounts of money is a good idea. However, you may end your trip with huge amounts of foreign currency that you may have to change cash to cash. Few big transactions are always better than many small transactions, but it means carrying a lot of money around.

Purchases

When making purchases in a foreign country, your best bet is to use plastic. When you use your Mastercard or Visa or American Express, you get the rate of the day with no transaction fees and no dent to your hoard of local currency. However, not all establishments accept cards and those that do will often require a minimum amount of purchase. If you intend buying a lot, it's worth your while to hunt a bit for shops that accept cards even if such shops are a bit more expensive. By virtue of paying by card and getting a good exchange rate, you will end up paying less. Consider this example.

Let us say you go to a country whose local currency, the ¤, is quoted at ¤10 to 1 US$. You go to a shop and notice something you want to buys that costs ¤400. You do the math and figure this costs $40, right? Not quite. If you pay in cash, you have to factor in how you got that cash. Maybe you got the cash through an exchange in which you got ¤9.5 to the dollar. In addition, you probably paid $5 in fees for the $50 you changed into ¤. Therefore, your effective rate is (50 - 5) × 9.5 ÷ 50 = ¤8.55 to 1 US$. The trinket you plan to buy now costs 400 ÷ 8.55 = $46.78! Alert consumer that you are, you go to a neighbouring shop that sells the same item for ¤450 but accepts Visa. Now you end up paying 450 ÷ 10 = $45, a better deal, though not immediately apparent. This little example illustrates the mental math you have to do in order to conserve your money in foreign countries.

Of later, credit card companies have wised up to the fact that the cards are the best way to conduct business abroad, so they are now actively working to destroy that convenience by charging a foreign transaction fee. Typically, such a fee is around 3% of the purchase amount, which can add up to quite a bit. It befuddles me was to why the credit card companies feel compelled to grub this money because the alternative - pay by cash avoids all such fees and cause the credit card companies to lose business. If you get the cash efficiently, e.g., by using your ATM card, this is actually the best way to shop abroad, even if it means carrying wads of local currency.

Restaurants

Eating out is something you will do often when in a foreign country. Food is a major expense, hence it makes sense to spend a while planning how to eat out, yet save money. Here are a few tips.

What you see is what you get: In most countries, with the US being a very notable exception, the menu price of a dish is exactly what you will be charged for that dish. This may be an important factor when you are trying to stick to a budget when eating out. However, WYSIWYG does not imply that there are no hidden charges. Read on.
Sales Tax, Gratuity: In some European countries, you will be charged a sales tax of around 15% on the food you eat. This policy, followed by Italy and by some restaurants in France and India, is very similar to the US policy of tacking on taxes at the end of a meal. However, the implications are slightly different. In the US, the tax is really a tax. In other countries, the tax is in lieu of a tip, i.e., the moment you see that tax attached to your bill, you are not obligated to tip.
Cover Charge: Some countries (Italy, for example) follow a despicable practice of charging you a cover charge for just sitting at a table. The cover charge is a fixed, per-person amount that will be added to your bill whether you order a seven course meal or just a cup of coffee. Along with the compulsory gratuity, you can end up paying double of what you expected to pay for your meal. Eating at the bar may be one way of escaping the dreaded cover charge.
Groceries: A way to eat inexpensively in all countries is to walk into a grocery store or its equivalent and buy readymade food. It's not quite as thrilling as eating in a restaurant and parleying with the waiters, but it's far cheaper and you may be able to choose your milieu, such as the base of the Eiffel Tower. Of course, if you managed to pay for the groceries with ATM-derived cash, you should really buy an extra bottle of wine for saving yourself a lot of money.
Lunches vs. Dinners: In general, lunches are cheaper than dinners despite the menu being the same. It's a wise idea to lunch at a restaurant and dine at home. In most countries, the size of the servings are not as much as the US. Also, there are no "sides" to a dish unless the menu explicitly says so.
Menu: French restaurants offer a combination of menus and items à la carte. The menu meal is cheaper and involves going through three courses: entrée, plat and dessert. You may choose what you wish for each course from a fixed list of items. There may be 2 or 3 menus for different price ranges. If you go for the à la carte menu, you pick and choose whatever you want to eat, but pay more.

Discount Cards

In a number of cities, you wil be enticed to buy cards that purport to give you discounts at various places, so much so that the cost of the card is covered in the discounts themselves. A few tips on these cards may come in handy.

Youth Hostel Card: You could become a member of Youth Hostels International by paying $25 per year (if you are below 26 years of age). For additional amounts you can get maps and guides to Youth Hostels in whichever continent you are travelling. If you are on a tight budget, this is certainly the way to go. Youth Hostels are not exactly the upper end of accomodations, but if you want to seriously save money, you have to stay in these. Most Youth Hostels will require you to show proof of membership, i.e., the card.
Bulk Tickets: If you plan to stay in a particular city for a while, it may be worth your while to procure a pass or bulk tickets to the metro. For example, in Paris, a regular metro ticket costs 8 francs each way. However, you can buy a packet of 10 tickets (le carnet des dix billets) for 46 francs, if you can manage to speak enough French to get it. If you are travelling in a group, this is certainly the way to go about the metro.
City Cards: These are of doubtful value. An example is the VeneziaCarte in Venice. It costs 5000£ (that's 5000 lira, or roughly US$3), and purports to give discounts of 10-20% at restaurants, stores and on boat rides. However, we found these discounts to be non-existent. Firstly, the restaurant and store discounts were useless because they were for somewhat expensive restaurants where even the discounted charges were higher than what we could afford. Secondly, the boat discounts were certainly not for the gondola rides. In fact, they weren't for the public transport motorboats either! For that, you had to buy yet another card. Buy a card only if you have been told by someone that it is indeed a good deal.
International Student Card: This did not seem like a useful card at all. The only place where I saw a discount being offered on this card was at the Louvre, where the price was cut by half if you had this card. However, we visited the Louvre on a Sunday when all the prices were halved anyway, card or no card, so it didn't seem like a useful thing to have the card.
Museum Cards: Many cities offer a museum card that lets you get discounted tickets at all the museums in the city. This is useful if you plan to visit a whole bunch of museums only, not just one. If you want to spend all your days in Paris inside the museums, go for this card. If you want to walk along the Seine, climb the Eiffel Tower, eat crepes and maybe visit a museum, don't buy this card.

Anand Natrajan, anand@anandnatrajan•com