Cash, Credit Cards and Banking Overseas, a few things we learned.

At first glance this subject really seems complicated.  We have been in a variety of different places using God knows how many different currencies, and we have learned a few things.  Most importantly, we don’t want to have a lot of expenses in bank charges, foreign transaction fees or lose on exchange rate transactions if at all possible.  This led us to ask various questions. 

Do we keep a certain amount of funds in different currencies? 

Do we need to open multiple bank accounts?

What credit cards do we need and how much will we use them?

Do we expect to get paid in foreign currency and how would we cash foreign checks if we actually received one?

The two things we knew up front were; 1) it can be difficult to move more than $10,000 cash out of the United States, and 2) having a bank account in another country would complicate our tax reporting and possibly expose us to taxes in that country.  We also evaluated our credit cards and realized that in addition to a 3% foreign transaction fee we would be subject to unfavorable currency exchange rates (based on our research and from previous experiences).

For us, the solutions turned out to be very simple although we spent a lot of time and effort getting there.  (It wouldn’t be the last time this happened)

The credit cards had a simple solution.  One of our cards did charge a foreign transaction fee but we simply don’t use it for anything other than online purchase (for travel or e-books for example).  We have had the account for many years and did not want to give up the long term credit relationship so we just figured out the best way to use that particular card.  This card was only to be used abroad in emergencies. 

It is possible to find credit cards offered by major issuers that don’t charge a foreign transaction fee and that utilize the best bank market currency exchange rate (Capital One among others).  The Capitol One Venture card and a few others like it also allow you to use “points” earned by using your card to pay off charges for travel and related items (free money, if you are going to be spending it anyway). 

Have at least two different credit cards in addition to a separate ATM card.  Sometimes your bank will stop a transaction because they want to verify that it is really you.  This can happen anywhere, anytime as a security measure for the issuing bank and having another card or two may come in handy so you don't get stuck until you have time to get on Skype and call your credit card company to verify that you are really you and that, yes, you really were in Brazil Friday, Buenos Aires Saturday and today you are in Montevideo.

Unlike in the US, the majority of people, including us, use cash for almost all local transactions outside of the US.  In many countries vendors will charge you extra to use a card, they add the two to five percent that the processing company will charge them to your purchase amount so that they still net their full price.  Cash in the local currency is the best way to go and it helps you seem like less of a tourist as well.  

Both of us really have an issue with being charged to use our own money.  We needed a strong electronic banking relationship that didn’t charge us monthly fees or transaction fees.  Since we primarily intended to withdraw funds, in the local currency, wherever we happened to be, from ATM machines, we needed to find a solution for the ATM fees.   We also needed to be able to make deposits, perhaps in a variety of currencies, occasionally move amounts of money around and pay bills automatically and electronically.

The solution; the Charles Schwab High Yield Investor Checking account.  This was easy for us because we already had a brokerage account with Schwab.  A brokerage account is required in order to have the checking account but they are easy to open and neither account has a minimum balance requirement.  The brokerage account is useful for wire transfers, especially foreign transfers.  Schwab provides market rates on their currency exchanges and rebates all ATM fees, from any machine, anywhere in the world.  An added bonus; the checking account pays a better interest rate than most money market accounts.  

We evaluated a number of US banks along with PayPal and Intuit just to name a few and the Schwab account provided us with everything we needed.  Everybody’s circumstances are different so when you know what your needs will be, do some investigation on your own.  Don’t over complicate it, simple is better.

A final note; it is becoming more and more difficult for US citizens to open bank accounts abroad due in part, to the reporting requirements of the IRS.  Some countries require residency to open an account and in fact, a majority of US based banks won’t open accounts for US citizens living in most other countries period.  Make sure you really need to bank outside the US before you take the step of opening a foreign bank account.

If you need a foreign account, find a bank and open one.  Be aware though that outside of the US banking is definitely a “fee for service” environment and you will not find “free” accounts.  You will pay fees to open, set-up and maintain your bank account pretty much everywhere outside the US.