Subsidize your vacation

When traveling abroad, you're likely to pay a lot in currency exchange fees.  In fact, probably 3% of your vacation spending will go toward them.  There's a way to not just avoid these fees but actually get paid to change currency.  So on a vacation where you spend $1,000 in, say, Euro, you can avoid around $30 in fees and earn another $10 in profit.  There are two ways to accomplish this:

1. (not recommended) Go to the departures area when you arrive at your destination.  Accost Americans returning home and ask them to sell you their extra currency on the cheap.



2. (recommended) Use a debit card that reimburses ATM fees.  Since most foreign ATMs don't charge a fee per se, Schwab One's debit card (and perhaps others) rebates you an amount equal to rounding down to the nearest $5 increment.  So if you withdraw $104.32 worth of Euro, you will be rebated $4.32.  I am not sure how many debit cards calculate foreign ATM rebates this way, but it is a very nice feature of Schwab's.  You get charged about a 1% foreign exchange fee, but if you withdraw moderate amounts, this fee will be more than offset by the rebate.  Contrast this with banks that charge extortionate fees (e.g. BofA: $5 fee + 1%, Citibank: $1.50 fee + 1%, WaMu: $2-3 fee + 1%).

Compare the exchange rates I got on a recent trip:

• Credit cards: 29.63 (BofA Mastercard), 29.73 (Amex), 29.81 (Amex)



• ATM: 31.58, 30.77, 31.58 (all Schwab)

You might recognize a pitfall of this approach: you have to use cash for all your transactions to maximize savings.  You can also choose a credit card that doesn't charge you the standard 3% foreign exchange fee, a byproduct of the class-action lawsuit.  By far the best foreign exchange card comes from Capital One (0% fee).  See how your credit card compares.