Weigh the Options for a Fair Deal on Foreign Money

Just off the plane in a strange country, weary and bleary after a long flight, you’ll almost immediately encounter a money-changing booth where signs list the buy and sell rates for dozens of currencies. Your jet-lagged state could be bad for your budget: Changing a few dollars for taxi or bus fare at one of these airport booths could end up costing you as much as a 10% premium.

In the high-tech 21st century, there are more ways than ever for travelers to deal with money abroad. The best strategy, financial experts say, is to use a credit card whenever possible and ATM cards to get local cash.

“We recommend customers use their [credit] cards for big items because they’ve got protection,” says Mike Sherman, spokesman for Visa International. Credit cards can be canceled and, unlike cash, can be replaced if lost or stolen. If you dispute a charge, you can issue a stop payment until it’s resolved.

Most important, credit card exchange rates are often the most favorable. But beware: It’s only a good deal if you pay off your bill each month. The interest on a balance, even for one billing cycle, could cancel out any exchange rate savings.

The convenience of automatic teller machines is tough to beat--you can withdraw only the amount of local cash you’re comfortable carrying. You’ll find ATMs everywhere in most developed nations, and the variety of networks (STAR, Interlink, Plus and the like) practically guarantees that if your card doesn’t work at one machine, it will work at another down the block.

Many foreign ATMs only accept four-digit PIN numbers. If your PIN is longer, check with your financial institution about changing it before you leave the country. Sometimes it’s as simple as going to your own bank’s ATM and changing it yourself.

You also can purchase traveler’s checks in the currency of your destination country. American Express, Travelex (which acquired Thomas Cook Global & Financial Services last year) and Visa offer checks in a variety of currencies, including the euro. Travelers to the Continent may find this particularly convenient since the euro became the official currency of most European Union countries last winter. (Britain, Denmark and Sweden declined to adopt the euro; Switzerland, Norway, Iceland and all of Eastern Europe are not EU members and thus retain their national currencies. For more information, or to familiarize yourself with the new euro denominations, visit the European Central Bank’s Web site at www.euro.ecb.int.)

With an estimated 8 million Americans expected to visit euro-zone nations this year, millions of dollars will be saved on currency exchange when traveling between countries, according to Neil Martin, spokesman for the European Travel Commission. “It’s just one of the reasons Americans [could save] money in Europe this year,” he said, also citing generally lower air fares, good tour prices and the strong U.S. dollar.To compare money exchange services and rates, during a trip to London in mid-April I conducted an experiment by buying British pounds using credit cards, ATMs, currency exchange booths and hotels. As a base rate, I used the interbank exchange rate (used by financial institutions trading in millions of dollars) that was quoted in the Los Angeles Times Business section the previous day: 1.4385 dollars per pound.

What I found supports the experts’ advice. Credit card purchases indeed produced the most favorable rates, followed by ATM withdrawals and purchasing pounds in the U.S. before the trip. The worst rates were in airports and currency exchange booths in London. Exchange rates for traveler’s checks in U.S. dollars were either equal to cash equivalents or a little worse. Here is a ranking of the rates I got, best to worst:

* Arriving in London, I used my Visa card to charge 23 pounds for a round-trip ticket on the Heathrow Express, the high-speed train that takes passengers from the airport to Paddington Station. I was billed $33.43, an exchange rate of 1.4535 dollars per pound. This included the markup charged by the credit card company, about 1% over the interbank rate. It’s a kind of hidden fee, but still the best deal I got. (Call your credit card companies before leaving home and ask what each charges as a markup on foreign exchange purchases. Then use the one with the lowest markup as your prime credit card.)

* Next, I withdrew 100 pounds using an ATM at a Piccadilly branch of HSBC Bank, a large British financial institution. For this, my home bank charged me $145.01 plus a $1.50 fee for using an “out-of-network” ATM. The total: $146.51, almost 2% over the interbank rate.

* On the same day I was spending money in London, one of the L.A. Times’ travel editors contacted International Currency Express in Beverly Hills, (888) 278-6628, www.foreignmoney.com. The editor was quoted a cost of $148.82 for 100 pounds. This was about 3.5% above the interbank rate but did not include the cost of delivery (about $10 in L.A.) or pickup (parking, gas, time).

* Tourist centers in major European cities seem to have currency exchange windows on every corner. Rates at the Currency Exchange on London’s Piccadilly seemed to be the best in the neighborhood. It added a 1.75% commission on 100 pounds, bringing the total to $151.61, about 5.5% above the interbank rate. Don’t be afraid to shop around: Another exchange company just a block away was the worst value I found.

(One caveat: When you’re ready to go home and considering changing your remaining foreign currency back to U.S. dollars, the exchange rates get worse and the commission fees jump--to 9.5% at one money exchange. So try not to exchange more money than you plan to spend, save the extra currency for another trip to the same country, or use the leftover cash to pay off all or part of your hotel bill, or for tips or shopping.)

* My hotel, the Park Lane Sheraton, offered me 100 pounds for $154 with no fees or commission, but still 7% over the interbank rate.

* The Travelex currency exchange in Terminal 3 at London’s Heathrow Airport confirmed my suspicions that airports have the worst rates. Travelex’s rate was about the same as at my hotel, but it charged a minimum 3-pound fee (about $4.50), putting the cost of 100 pounds at $158.25, or 10% above the interbank rate.

LAX was even worse. At ICE Currency Exchange in Terminal 7, changing 100 pounds would have cost me $160.65, including a $4 minimum fee, more than 11.5% above the bank rate.

* The worst deal of my London experiment? The Change Group, one block from the Piccadilly exchange window I used, had the highest exchange rate (1.5875) in my experiment, plus a 2% commission--bringing the total for 100 pounds to $161.93, or 12.5% over the interbank rate. The agent there, apparently identifying me as American, offered me a special “no-commission-on-U.S.-dollars” deal. As I walked away, she also shouted out from behind the glass that she was willing to negotiate further. The idea of haggling with someone who spends her day in a booth juggling decimal points made me feel as though I would simply be opening my wallet and asking her to help herself.

When I returned from London, I called American Express to find out what kind of value I would get by purchasing its traveler’s checks in British pounds. The operator wasn’t much help. First she said she could get me an “exchange rate based on the Internet,” which she quoted as 1.5359. But when I pushed for an explanation of what part of that was the markup above the bank rate, she said, “I cannot give you the breakdown.”

Because currencies fluctuate daily, I used the same standard for establishing a base rate as in the examples above, drawing from that day’s L.A. Times Business section. Depending on the type of American Express card you have--green, gold or platinum--it was 5.5% to 6.5% higher than the interbank rate. Delivery, which takes from seven to 10 business days, is free, though a fee is added for quicker turnaround.

Another, more recent exchange option is a prepaid ATM card, a good choice for those who want to keep a tight rein on their travel budget. Visa offers one called Travel Money, available through Travelex, (877) 394-2247, www.travelex.com. You preload it with a minimum of $300, then use it just like an ATM card, withdrawing cash in increments as needed. “It’s an adjunct to or in lieu of traveler’s checks,” says Sherman, the Visa International spokesman.

Two drawbacks: Unlike credit cards, Travel Money cards cannot be replaced if lost or stolen, and they can be used only at ATMs, not at retailers such as restaurants or souvenir shops. However, a PIN number that can be customized is issued for protection.

You can also change money on the Internet. Several of the largest travel sites, including Travelex, allow you to purchase currency and traveler’s checks over the World Wide Web. And many travel sites also have links to currency converters. Both Orbitz and Travelo- city linked me to a Web page called My Travel Wallet (a service of Travelex), which allows you to purchase currencies online.

If you are traveling to regions where ATMs are rare, you will have little choice but to revert to the usual suspects: exchanging cash or traveler’s checks at banks, airports or hotels. Make sure to research what’s available before you leave home.

Finally, there is a currency black market in many countries, especially for highly valued U.S. dollars. The street rates may be temptingly low, but watch out: Selling dollars on the black market could land you in a foreign jail.

So be sensible and plan ahead and you may end up saving yourself money and hassles. These days, you definitely need more of the first and less of the latter.

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James Gilden is a freelance writer based in Los Angeles.