Travel on a weak dollar in Europe

By Ed Hewitt

updated 11:07 a.m. ET April 27, 2007

When is a dollar not worth its weight in gold? When you're measuring in pounds.

British pounds, that is.

On April 17, the pound reached an exchange rate of $2 against the American dollar for the first time since September 1992. That means that your George Washington paper bill is worth about two George Washington quarters — or, put more directly, what costs you about 50 cents here will cost you a dollar in the United Kingdom.

Further, the dollar is tanking against the euro on the other side of the Chunnel, recently coming in at around $1.36, with analysts expecting the euro to surge again next week. All told, the dollar has lost about 52 percent of its value against the euro since the beginning of 2002. Ouch!

What's the cause? I'm no economist, but a recent surge in inflation coupled with our massive national debt and a severely troubled war effort are the most likely explanations, say most analysts.

Of course, this isn't MarketWatch, it's Traveler's Ed, and so we're more concerned with how the exchange rate will affect your next trip to Europe. Luckily, a weak dollar doesn't have to derail your European vacation — in fact, travel to Europe is expected to be up this summer — so let's move on to what this means to travelers, and more specifically what you can do about it.

1. Get cash from ATMs — at a bank
An ATM is your best option for a combination of a fair exchange rate and low surcharges and fees. At an ATM, you will likely pay a transaction fee, but in many cases you won't be paying a percentage on every dollar exchanged.

CNBC video Taking a pounding April 25: NBC's Peter Greenberg explains how travelers can survive the high cost of a weaker U.S. dollar when traveling in Europe. CNBC

However, we should note that many banks are now applying fees to foreign transactions, usually in the 1-2 percent range. Over the course of your trip, you'll take a hit from these fees — but it will be nothing like the up to four to eight cents on the dollar that you can lose by choosing the wrong exchange desk. In most cases you'll get the best rate available; the pennies can really add up the more you spend (and you'll be spending plenty in Europe this year).

When using an ATM, you may want to take out more cash than you need immediately, as with each trip to the ATM you pay the fees and surcharges yet again. You'll want to balance this tactic against the risk of carrying too much cash, which can make you vulnerable to the criminal element that sometimes preys on travelers. A hotel safe might be a good hedge against this problem. For more tips, check out this feature on money safety.

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You'll do well to avoid stand-alone, off-brand ATMs of the kind you can find stateside in the back of convenience stores and the like. These typically have the highest transaction fees; use an ATM from a reputable bank instead.

Finally, even when using a bank ATM, you will sometimes pay fees both to the bank that owns the ATM as well as your own bank. Whenever possible, use your own bank to get cash. Virtually all major banks have ATM and branch location services on their Web sites.

2. If you absolutely must use a currency exchange counter ...
The following tips can help minimize the damage:

3. Use your credit card
Many of the benefits of using an ATM card also apply to your credit card, with the additional upside that transaction fees, surcharges, poor exchange rates and the like are a lesser evil in most credit card transactions.

However, this is one area in which all credit cards are not created equal. Many credit card companies have adopted fees for purchases made in foreign currencies, usually 1-2 percent. Choose the right card and you can avoid these fees; Capital One, for example, is one major credit card company that will not charge you these fees (at present, anyway). Check with your credit card company for their fee schedule on foreign purchases to figure out which card has the lowest surcharges, and then use that one for your overseas purchases.

Out on the road, also check the fine print to make sure that your hotel, restaurant or other outfit does not tack on a percentage fee on all credit card transactions to cover their authorization fees.

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