Spring is in the air and many people are beginning to plan their summer vacations. This year is an optimal time to travel across the pond to visit members of the eurozone. I am not saying that as a travel agent, but rather as a macroeconomist.
In the last year, the official currency of the European Union has lost nearly a quarter of its value against the U.S dollar. One euro now equals $1.08, an exchange rate we haven’t seen in nearly 12 years and down from a high of $1.60 in summer 2008. The euro and the dollar haven’t been equal since 2002, three years after the birth of the euro in January 1999.
The European Central Bank has launched quantitative easing and is scheduled to buy 60 billion euros of public and private bonds each month until at least September 2016. This is a page ripped out of the U.S. monetary policy playbook, as the Federal Reserve wrapped up five years of quantitative easing in October 2014.
As you begin to plan your summer vacation, here is some advice for taking advantage of these favorable rates, as well as some general tips for traveling abroad.
Although the euro is priced at $1.08, that won’t necessarily be the price you pay when you visit eurozone countries. The price you pay per euro will depend on where you decide to convert your currency. Most travelers convert their dollars by using a currency-exchange kiosk at an airport or mall. According to Travelex, a retail currency exchange, a single euro now costs about $1.20, about 8% more than the quoted price on the exchange, so be aware of the transaction fees.
The rates that U.S. banks and credit card companies use in converting foreign currency to dollars is more favorable than the rates used by retail currency shops. Also, some banks allow the use of their debit cards overseas, thus making it financially favorable to withdraw cash from an ATM abroad, incurring only a small foreign transaction fee. However, many credit card companies do not implement fees on foreign transactions.
Besides exchange rates and transactions fees, there are other important costs to consider when traveling outside the U.S.
Check with your cellphone carrier for international rates and know where they apply. Making a call or sending a text or photo to friends and family could cost you more than you realize.
Make sure your health insurance coverage is adequate. Medical transport and hospitalization can run into the thousands of dollars.
Be sure to let family members or loved ones know where you have your medical directives and copies of your driver’s license, passport and other important documents. We encourage our clients to utilize our online vault system, a cloud-based service where they can access their documents 24/7 via the Web.
Following these steps will allow you to take advantage of the strong dollar and enjoy your summer vacation. This favorable currency environment may not be around next year.
Learn more about Jeremy on NerdWallet’s Ask an Advisor.