Thursday, June 2, 2011

Colones, Dollars, Euros and Cents

Wouldn't it be great if the entire world had a common currency?  (Okay people, don't go into a hissy fit over that sentence)  But the fact of life is most countries have differing currencies.  In fact there are continents that have so many countries all with their own currency, you only have to go 4 hours in a bus before you're switching from Cordoba to Lampira.  Which is exactly the situation in Central America.

Within Central America you have 7 countries (Belize, Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, and Panama) each with their own currency.  So what are travelers like us to do?  Here's some tips and suggestions about how to take care of finances while traveling, or settling down in a new country.

After traveling from Costa Rica to Honduras I had 4 different currencies in my pocket.

Cash is always extremely important to have on hand.  In more developed countries you can swipe your plastic to buy a 50cent piece of gum.  But in less developed areas credit card machines are rare and you have to have cash.  They way I usually take care of this is by using ATMs.  Depending on what it is I'm doing, I try to take out however much cash I think I'll need for a certain amount of time.  For example, when I was living in Costa Rica I would take out $300 of local currency (colones) every month.  I hid the money in my room and would grab some when I needed it.  When I travel I'll take out $70 of local currency or however much I think I'll need for the week/ 3 days/ whatever.  I do this to avoid the ridiculous ATM and exchange fees that your bank will charge you (more on fees below) every time you use your ATM/debit card.

Another thing to consider is bringing along USD (US dollars) or Euros.  In Central America USD are often accepted just as often as local currency.  You can use USD to pay for hotels, plane tickets, bus tickets, really just about anything valued over $20.  Make sure your USD are in crisp condition.  Also make sure you know conversion rates so you know you're not getting ripped off.

Finally, in less developed areas you really need to carry small local currency.  Each country will differ in what is "small".  In the USA you could buy something at a store with a $50.  In Costa Rica it's hard to buy an item with a bill worth $10.  And in Nicaragua you really can't buy anything unless you have the coin worth $1.  What does this mean?  Well, it means that sometimes I spend more money trying to break bills than actually buying stuff I want.  Especially in markets, street vendors or taxi fares, make sure to keep around small bills.  In countries where a meal costs 50cents USD, you can't buy stuff with an equivalent 5USD bill.  I would usually split larger bills ($20 equivalent in Costa Rica, $5 equivalent in Nicaragua) at grocery stores or other places where they are likely to have change.  It is a good idea to ask first if they have change for your large bill.

Our other favorite form of money.  Most credit cards will charge for both a transaction fee AND a currency exchange rate.  Debit/ATM cards will charge an ATM fee, the currency exchange rate, plus whatever the ATM is charging.  This is why I recommend to take out larger amounts of money less frequently to avoid getting hit by fees.  Check with your bank before you leave about what the fees are (also to tell them where you're going and how long you'll be gone or they might think the charges made in the Bahamas are fraudulent).   It might be worth it to switch banks or open a new account to avoid the fees.

Discover and American Express are not as widely accepted as Visa and MasterCard.  Both Visa and MasterCard charge a 1% currency exchange fee for every transaction (this includes buying something on the internet while in a foreign country).  So if you find a card with this rate, it's a pretty decent one.  Where you start getting hit is when banks add on an additional 2% or 3% plus a $5 fee.  So check with your bank!

So which cards are the best?  After doing some research today on the "best" credit card to have abroad I found a fairly unanimous agreement that CapitolOne is a great card to use abroad.  They not only do not charge you any extra, they also pay for the Visa/MasterCard fee of 1%.  So you don't get any fees using it abroad!  A lot of credit unions will do this for you too.  (Watch out for other fees-- my credit union was going to charge me $1 / month just to have an account.  That's BS)  CitiGroup also has a very low transaction fee, just the 1% from Visa/MC.

Here's a table from the year 2009 (so it could be quite outdated by now) that is helpful:

Bank of America1%$5waived at Global Alliance banks*
Citigroup1%$1.50no fee at any Citibank branch
JP Morgan Chaseincluded in ATM fee3% to 3.5%
Wachovia1%$2waived for certain accounts
Wells Fargo3%$5
Washington Mutual1%$3
US Bancorp2%$2fee is sometimes waived
HSBC1%up to $1.50no fee at HSBC branches; waived for some accounts
SunTrust2%$2waived for some accounts
National City Corp.2%$1.50

*Global Alliance includes Barclays, BNP Paribas, Deutsche Bank, Scotiabank, Westpac, Santander Serfin.

With all these numbers and names and such being thrown around, my overall recommendation is to carry both cash money and plastic money while traveling.  But please don't put all of it in your back pocket then walk down the street.  Which makes me think I should do a safety post one day...

So start early, stay patient and find the best deals for yourself!  It's worth it!