If you are like me, you dread dealing with your finances while abroad. The ATM fees (from your bank and the owner of the ATM), credit card fees, and unfavorable foreign exchange rates feel like usury (in Bolivia they even add fees directly to your bill before a credit card is charged). Combined with the risk of theft and potential for fraud this part of doing field work is a real pain. If you are being paid on stipend it can be even worse because you do not start out with all of your funds (or like most of us, the grant money doesn’t come through until mid-field work or worse). The situation is only compounded as your time in the field increases and, by consequence, the amount of money you need to sustain yourself. More money means more potential that it is stolen in a robbery whether that is from your checking/ATM account, your hidden money belt, or your suitcase.
And traveler’s checks do not solve the fee problem. If anything, they make it worse. For example, the average travler’s check in Bolivia is charged a standard fee for cashing AND is given a worse exchange rate and this is if you’re lucky enough to, a) find a place that will take them (most small towns have none of these) and, b) you have or can make a photocopy of your passport to submit with the check.
The Better Way to Use ATMs Internationally
To get around all of this below I outline the
scheme plan I have put together for handling money in the field (free funds transfer, free ATM withdrawals, and a credit card with no international fees) while maximizing convenience as well as security. I’ll be gone 18-months+ while doing field work in Bolivia starting June 2011 and will likely be required to obtain formal residency while I’m there. But regardless of whether this is the case for you, my plan should work just the same for anyone with ready access to an ATM—or at least on occasion—and a phone or internet connection to transfer funds (or you can set up a recurring transfer). Oh and one tip: keep the checking account you already have as a backup in case something goes awry with the new setup (like a card goes missing or is stolen).
Since nothing comes for free, here’s what you’ll need to make this work:
- Sufficient credit to open a new brokerage account linked to a new checking account
$100 initial deposit in an E*Trade Checking accountUPDATE (3/11/2011): You don’t need the separate E*TRADE account. Instead, just use the brokerage account that comes with Schwab’s Investor checking. It has a feature called MoneyLink that works like E*TRADE’s Quick Transfer (see below) that provides free ACH transfers. So as long as you leave most of your money in the brokerage account and just move what you’ll need over to the checking (on the internet or have a family member do it), it cannot be taken by ATM thieves. Still a good idea to have your current checking as a back-up though.
- A couple of weeks time to apply for the accounts (using your SS#, driver’s license, home address & an estimate of total liquid assets), fund them, get your cards, etc.
And that’s it. The how-to is after the break:
In case you’re worried that putting your money in a
n E*Trade Checking Schwab brokerage account with no interest—instead of leaving it in your current checking—might cause you to lose cash to inflation (without a substantial investment most checking accounts don’t come close to matching inflation), let me make the case for why this is a good idea with a personal example from summer 2010 and some math:
If you didn’t know better, you might be empathetically annoyed at the bank charges above because it appears that it cost $6.72 (4.26%) to withdraw $157.82. But you wouldn’t be sufficiently annoyed. Farther down the statement there are two Iowa Tax fees ($0.14/ea) and a $2 balance inquiry fee. So to withdraw $157.82, it cost me $9. Right? Still insufficient annoyance. You see, the $157.82 is an exchange rate of 6.97 Bolivianos—USD. But the historical exchange rate for 8/9/2010 was 7.03940 which comes out to a $1.56 currency exchange fee. So I paid $10.56 (6.7%) for $157.82. Assuming I were to stick to the rule of thumb for safety and only withdraw $300 maximum at a time (which, might I point out is still an amount equivalent to a few times the monthly salary of a rural Bolivian who typically lives on ~$2/day so this is probably more than you should ever have on you) that would mean for each transaction at an ATM I would be paying anywhere from $15-20. Say you plan to spend $3,000 on a trip. that’s at least 9 trips to the ATM (you’ll bring $300 with you…), which means $135-180 in fees. Still think the loss of your cash to inflation is your biggest worry? Extrapolate that to $10k and your fees could be $485-$647.
Caveats to the math: Fees at banks vary dramatically over time and from bank-to-bank, especially for international transactions. For an extensive list of these fees check out FlyerGuide.com’s wiki. That being said, most major US banks have a pretty similar fee structure as outlined in my example (which comes from US Bank because I’m originally from Iowa).
The Plan: 5 Basic Steps
Sign-up for an E*Trade Checking account and put the funds for your trip in it (Warning: if you use an existing account to fund your new E*Trade with a free electronic ‘Quick Transfer’ you’ll have to wait thirty days before you can add another new account, which is step four. So send a check to E*Trade instead for your $100 initial deposit. There is no minimum balance after that and no fees for having the account). Purpose: Free funds transfers via E*Trade’s ‘Quick Transfer‘ feature (they take 3 days minimum—not like a one-day or overnight wire but also not $15-$50). Also, keep all of your funds safe here since this account will not have its own ATM card meaning funds can only be transferred from it via an ACH transfer (this is the free Quick Transfer).
1. Sign-up for a Charles Schwab High Yield Investor Checking Account (Warning: this is distinct from the Charles Schwab Bank Interest checking accounts! The plan only works with the investor checking account. If you don’t believe me, see the differences here.), which will also require you to sign up for a Charles Schwab Brokerage account. When you sign up for both at the same time the usual $1,000 minimum deposit for the brokerage account is waived.
Purpose: The investor checking account charges no ATM fees, even internationally, and refunds all others’ ATM fees monthly. And if you have any trouble with missing refunds you can call their customer service which has a sterling reputation.
2. Fund your Schwab checking account but move everything you don’t need immediately over to the Schwab investor account (this is free and during business days it’s usually immediate) leaving just enough $ in the checking for a few ATM withdrawals.
3. Add your Schwab checking account as an external transfer account for use with your existing checking account (this can take a few days so don’t neglect to do this while you’re still in the states and if you want to add another account you’ll need to wait 30 days before doing this). And don’t forget to consider using the checking account as your direct deposit account—but if you do this you’ll need to transfer over what you don’t plan to use immediately to the investor account.
Purpose: This will allow you (or a trusted partner/family member) to make a transfer from E*Trade Checking to Schwab Checking whenever funds get low.
4. As a backup, you can use the Schwab app on iOS and Android to make check deposits just by snapping photos of the check. All you need for this are some blank checks from your existing checking account (or from that of a parent, etc. who could give you emergency funds if/when they are needed).
5. Activate your Schwab Visa Platinum Debit Card and get to it.
The Best Credit Card for International Purchases
If you have ever researched using credit cards overseas then you likely already know that Capital One beats all the others on fees: there are none. Even better, some Capital One No Hassle cards (with excellent credit) give you free travel insurance when you use the card to buy airfare, free car insurance when you use it to rent a car, free 24-hour domestic roadside assistance and zero liability if it is stolen. There are other benefits as well, including cash back or miles depending on what flavor you choose. I got this one. If you do not have excellent credit, you’ll likely miss out on the extra benefits but you’ll still get zero fees on international transactions.
I hope this was helpful for those searching for a better way! There are alternatives depending on what’s available to you locally, but almost all other options require large amounts of cash to sit in an account in order for you to get such preferable ATM terms (e.g. First Republic Bank on the coasts which has a $3,500 min. balance but waves/refunds all ATM fees internationally). Finally, thanks to Trevor at mebobandsurly.wordpress.com whose recent post helped me fill-in the details of my plan.