After “where should we stay in xyz?,” the question we hear most is how best to change dollars into foreign currency, mainly euros.

The answer is simple; take your ATM debit card to Europe and withdraw the cash you need from bank ATM machines. Be sure you have a four-digit PIN and you might also want to talk to your bank about raising the daily maximum amount that can be withdrawn. To pay for larger purchases, such as hotel bills, use a credit card, preferably one that doesn't charge a foreign transaction fee (Capitol One and a few others).Currency

Not convinced? You’ve got company. I read listservs and online forums where some folks actually sing the praises of exchanging large amounts of dollars for euros here in North America, then carrying them to Europe. Still others rely on traveler’s check or debit cards pre-loaded with euros.

Bill Clinton won an election by adhering to the phrase, “it’s the economy, stupid.” When it comes to changing money, it’s the exchange rate, stupid.

Recently a man headed to Europe for the first time asked me what I thought about purchasing one of those cards pre-loaded with foreign currency. He wanted 2,000 euros. The balance on the card would diminish as the card was used. Sounds safe and easy and, in fact, is. But there’s just the tiniest catch; it would cost him about $400. Here’s how. To get a card pre-loaded with 2,000 euros, he said, would cost “about $3,000.” I noted that the exchange rate that day was one euro to $1.30 and the company that wanted to sell him the pre-loaded card was charging $1.50 for each euro. With an ATM debit card he could get close to the 1.3 exchange rate. Thus the difference in cost between using his ATM card and buying the pre-loaded card was $400. There might, of course, be some ATM transaction fees, but far less than $400. At the end of our conversation he agreed that buying euros in this way is a very bad idea.

Traveler’s checks? Remember those bygone days when we used to buy them in foreign denominations; Deutsche Mark, francs (both Swiss and French), and lira. No changing dollars in Europe. They worked well, were accepted by most businesses, though the rate of exchange our U.S. banks, Thomas Cook and American Express gave us was well above the inter-bank rate we now get with ATM and credit cards. But that was then, this is now. Try to cash a traveler’s check in Europe and you may get a shrug and a shake of the head, even in a bank…provided one’s open when you need money. So, other than the lousy exchange rate and the difficulty in cashing them, traveler’s checks are perfect.

A woman who regularly posts on a popular travel listserv I follow claims buying a few thousand euros before leaving for Europe is the way to go. No worries about finding ATMs or banks, and every business accepts them. Last winter she informed the list that she had purchased 3,000 euros to use for spending money during six weeks in a Venice apartment this summer. She viewed the dollar as weakening and expected to make money on the deal. On January 15 the inter-bank exchange rate was 1.45. She probably paid 1.55. Thus her 3,000 euros, if purchased that day, cost $4,650. But last spring the dollar did something a lot of people didn't expect. It got stronger. This summer the exchange rate has ranged from 1.19 to 1.31. Let’s figure an average of 1.25. Using that number, had our Venice-bound traveler used an ATM to obtain money as needed, her 3,000 euros would have cost her about $3,750, a difference of $900. Of course currencies fluctuate constantly and given other circumstances she might have made money. But, just as it isn't smart to “time” the stock market it’s not prudent to try to guess the future value of currencies. Buying euros a few at a time is akin to dollar-cost-averaging when investing in stocks or mutual funds. That way the averages work in your favor. You might not make as much but you also don’t lose as much if things don’t go your way. It’s the same with foreign currency. Buying a little bit at a time is prudent. Of course the elephant in the room in this discussion is the incredible naivete of traveling in airports and foreign countries with large amounts of currency…of any denomination.

And, you should never, ever swap money at a currency exchange booth in an airport, rail station or on the street.

For bigger purchases abroad, hotel bills, restaurant meals, etc. (not rental cars; prepay those before leaving for Europe), I like my credit card. Yes, it costs me three-percent (two-percent with Amex) in foreign transaction fees, but I get frequent flyer miles, a record of my transactions, the best possible exchange rate, and I usually don’t have to pay for several weeks. If I had a Capitol One card there would be no foreign transaction fees. Don’t take a Discover card to Europe, it won’t be accepted.

One note about credit card use in Europe: many automated machines that dispense such items as rail and parking tickets require a credit card with an embedded chip. Generally speaking, European credit cards have the chips and North American cards do not. These are called “chip and PIN” cards. In some cases you’ll be OK if you can enter your PIN, so be sure you know your credit card’s PIN. At a rail station you can usually buy from a real person at a ticket window, but in other circumstances you may be out of luck; your card may not work at automated gas stations, toll-road collection stations, and unattended parking garages.

Some travelers are also encountering the “chip and PIN” problem in restaurants and hotels. If that happens, insist that your card number be entered manually.

There is yet another way to lose more money than necessary on currency exchange. Here’s how it works: You’re using a credit card to check out of your hotel, pay your restaurant bill, settle your rental car or buy something in a store. You are asked if you’d like to pay in dollars instead of euros. Sounds good. This way there’s no waiting for the credit card statement to know the exact dollar amount. Unfortunately, this is called Dynamic Currency Conversion (DCC) and will add an additional three to five-percent to your transaction, a cost that may not be itemized on your credit card statement but instead buried in a poor exchange rate. Often you won’t even be asked which currency you prefer, the charge slip in dollars will simply be put before you for signature. DCC is one of the true rip-offs of overseas travel. Though some may find it convenient to know the exact amount in dollars that will appear on next month’s credit card statement, is it worth $15 to $25 on a $500 hotel bill? I don’t think so. This is a phony, non-service designed to milk extra revenue from unsuspecting travelers. The proceeds are shared by the merchant and the companies that sell them DCC. Don’t fall for it, insist on paying for everything in Europe in local currency.—RHB