Be prepared for ATM what-ifs

Q: I know that using an ATM card when traveling abroad is a convenient way to get cash at a favorable exchange rate, but is it a good idea to bring some cash or travelers checks as well? What if my card gets stolen? And what about the new "stored value" prepaid debit cards?

A: I still like ATM cards for getting cash abroad. But they're not perfect. What if you're in a foreign country, and the ATM system is down because of a power failure or computer glitch (which always seems to happen on nights or weekends, when you can't call the bank)? Or maybe the ATM doesn't have multilingual instructions, so you can't figure out how to get cash. In these frustrating situations, it would help to have a bit of local currency before you can resolve your issues, which is why it's a good idea to convert some currency before you leave for an international trip. Most major financial institutions (such as Chase and Citibank) have foreign currency on hand.

Another option is to purchase travelers checks in the foreign currency through big companies like American Express or Visa, which are easily obtainable through the larger branches of many local banks or the American Automobile Association (AAA). But even though traveler's checks are advertised as being "safer than cash" because the issuers promise to replace them if they're lost or stolen, the issuer may refuse to refund or replace the amount if they decide you've been "negligent." And more importantly, smaller merchants and some hotels may not accept traveler's checks.

Some major credit card companies (like Visa and American Express) also offer stored value cards, but I'm not a big fan. These prepaid debit cards can be used throughout the world to make purchases or withdrawals from ATM machines. If your card is lost or stolen, the issuer will issue a new card or refund the unused balance. However, the fees associated with using these cards can add up—depending on the card, fees are deducted per withdrawal, when you add more value, and every time you make a purchase in a different currency than the one on the card. So if you fill it with US Dollars and purchase something in Euros, another fee is added for the currency exchange service. Sometimes, there's even an activation fee.

Your best option for getting foreign currency is by simply using your ATM card. But we'll say it again and again—it's essential to notify your banking institution before you leave home, in case the bank freezes your account because of unusual activity. In addition, it's advisable to carry a second ATM card from another bank or the same bank but a different account (keep it in a safe place, separate from your primary ATM card) just in case you lose your first ATM card or it gets eaten by a machine. The bottom line is that ATMs are such a common feature nowadays that it often makes more sense to withdraw money in local currency with an ATM card than to bring along loads of cash or travelers checks.