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December 16,2017

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Traveler's Checks Vs. ATM Cash: Tips for Tourists

There was once a time when traveler's checks were almost as important to overseas travel as a valid passport. That started to change once branded credit and debit cards began to explode in the 1990s.

So does the old American Express (AXP) tagline “don’t leave home without it” still have any credence? While traveler's checks still offer great theft protection, it’s getting harder to justify their cost and lack of universal acceptance.

The Concept

Tourists can either pay with a traveler's check at a shop or hotel, or cash them in for local currency at a foreign bank. Since their introduction more than a century ago, their main selling point has been peace of mind. Unlike cash, the issuer will replace the check at full value if it’s lost or stolen.

There are two important characteristics that help prevent theft: First, each check comes with a unique number, which the owner should record and store in a safe place. This way, the company can trace the check if it goes missing and grant the buyer a free replacement.

The signature-verification feature provides another layer of protection. Users sign the top of each check when they first receive it. At the time of a purchase, they sign on a second line in front of the merchant, who can then compare the signatures for a match.

In addition to security, traveler's checks can help keep your spending from going out of control – an important virtue when you’re sightseeing abroad. This is harder to do when you have a credit card with a sky-high spending limit.

American Express is still the best known provider, although Visa (V) is another big name that offers traveler's checks. You can check their websites for a list of nearby banks that sell them.

The Decline

At a time when many overseas ATMs accept Visa and MasterCard (MA), many vacationers have come to see traveler's checks as an unnecessary hassle. They also tend to be one of the more expensive ways to purchase foreign currency. Many banks will charge a 1% to 2% fee when you buy the checks, compared to the relatively small fee at the teller machine. Furthermore, experts say traveler's checks these days provide one of the worst exchange rates you can get.

It’s also getting harder to find merchants who accept them. It used to be that just about any business would gladly take your traveler's check. Depending on where you visit, that’s not always the case anymore. In some places, acceptance is spotty, with only hotels and other tourist establishments willing to take them instead of cash.

All this has contributed their rapid decline in recent years. Today, use of traveler's checks is less than half what is was in the mid-1990s.

The Alternatives

Today, the more common approach to spending overseas is carrying at least one credit card, as well as some local currency. In most tourist destinations, Visa and MasterCard – and to a lesser extent American Express ­­­­– are widely accepted.

If you’re the nervous type, there are a couple of things you can do to keep your money safe. First and foremost, don’t become a target for pickpockets. That means keeping your cash close to your body, not in a backpack. Also, beware of high-priced handbags or other items that suggest you’re well-heeled.

Another step you can take is loading a prepaid debit card, instead of using a regular credit card. Options such as the MasterCard Prepaid Travel Card and Visa TravelMoney Card offer some of the same benefits as a traveler's check. Both companies will replace your lost card and protect against fraudulent charges. Just alert the issuer before you leave the country to ensure it doesn’t block your foreign purchase.

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