Debit card may be the best option for daughter abroad

By Janet Bodnar
Kiplinger's Personal Finance
Published: Friday, April 21, 2006 1:37 p.m. MDT
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Question: Our daughter will attend school abroad next year, and we're trying to decide how to provide her with spending money. We trust her, so we wouldn't be concerned about providing her with a credit card. We would also give her a few hundred dollars in traveler's checks.

My wife prefers to give our daughter a debit card because she knows other parents in our situation who have done that. But I don't know the reasons, so I can't see the merits of this or argue against it. My wife also doesn't see a need for traveler's checks.

We'd like to minimize fees, so I'm concerned about ATM usage. What would you suggest?

Answer: Getting cash overseas is often a trade-off among convenience, fees and safety, and there's no single perfect answer. But a debit card is a good all-around choice for a number of reasons.

Your daughter could use the card to make purchases and to get money out of ATMs. She'll probably need more than a few hundred dollars in cash during her year abroad, and debit cards are more convenient than traveler's checks. And you could make deposits to the account back home if your daughter needed more money.

Whether you use a debit or a credit card, Visa and MasterCard charge a currency conversion fee on purchases made abroad, and issuing banks often tack on a surcharge. But your daughter would get the benefit of the wholesale exchange rate, which beats the retail rate she'd get if she converted currency on her own.

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Withdrawing cash from an overseas ATM could cost $5 or more on top of the conversion fee if you use a machine that's not part of your home bank's network. However, you can minimize fees by choosing the right card.

For example, Citibank customers can withdraw cash without charge at branches in 38 countries. HSBC offers free ATM access in 69 countries.

Because your daughter will be abroad for an entire year, her least expensive option might be to open an account with a local bank that has a U.S. affiliate. (My daughter, who attends school in Canada, has a Canadian bank account with a debit card for transactions there.)

You could help your daughter get a credit card, too, but that would be in addition to a debit card rather than in place of it. Credit cards aren't a good way to get cash because interest rates on cash advances are so high.

Have a question about kids and finances for Dr. Tightwad? Write to Dr. T at 1729 H St., N.W., Washington, DC 20006. Or send the good doctor an e-mail message (and any other questions for this column) to jbodnar@kiplinger.com.

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