The strong dollar means the world's on sale, but be careful how you pay

The strong dollar means the world's on sale for Americans, but making currency fluctuations work to your advantage requires financial savvy when it comes to how to pay for everything from hotel rooms to air travel and cash purchases.

With the euro at an 11-year low against the dollar, Europe is shaping up to be an especially good bargain.  If you booked a hotel room last June in Rome for 125 euros, the cost in U.S. dollars was $162, based on an exchange rate of $1.30 to one euro. That compares to $135 today (3/9/15) at the current rate of $1.08. 

Will the euro's value drop further? Most experts expect it to. Some predict the U.S. dollar and the euro will reach parity by April, a good reason to pack along these tips as you plan for spring and summer travel:

 1) Lock in hotel rates in the local currency such as euros or Canadian dollars.  Accepting a quote in U.S. dollars locks you into a price that could be lower by the time you travel if the dollar continues to gain strength. This makes a case for booking directly with hotels on their websites rather than using a third-party booking site which might either charge or encourage you to pay in U.S. dollars. 

2) Examine package and promotional deals closely to make sure they are priced in the local currency, or if not, reflect current drops in exchange rates. Most package tours for 2015 were priced before the dollar gained strength, meaning the operators will be making a nice profit above what they expected, unless they decide to offer a discount based on current rates. It never hurts to ask. Kudos to LivingSocial for posting its Canadian escapes in Canadian dollars. Example: Two nights at the Foxglove Inn and Gardens on Vancouver Island was recently priced at $119 Canadian, the equivalent of $95 U.S. 

3) Avoid pre-paying for hotels or anything else priced in foreign currency. Pre-paying is almost always a bad idea, but especially when currencies are falling against the dollar. Many European hotels and third-party booking sites have started offering slightly lower rates for nonrefundable bookings. The 10-15 percent savings isn't great enough to outweigh the risk that rates will fall further, or worse yet, you might need to change your plans. 

4) Avoid buying large amounts of foreign currency in advance of your trip. The same goes with prepaid debit cards issued in a foreign currency such as those sold by AAA and Travelex. If you feel like you must arrive at your destination with some local currency in order to be feel comfortable, bring just enough to get started, then get whatever more you might need at local ATMs at the airport or in town once you arrive. Be sure to use ATMs  owned by a bank or financial institution, not privately- owned cash machines owned by foreign exchange companies such as Travelex which charge a high fee or issue the currency at a poor exchange rate. For non-cash purchases, use credit cards with low or no foreign transaction fees.

5) If paying for purchases in cash, use the local currency rather than U.S. dollars. Many Canadian retailers will accept payment in U.S. dollars as a convenience to American travelers, but it's usually at parity, meaning, at current exchange rates, you lose around 19 cents on the dollar. Pay instead with a credit card that carries no or low foreign currency transaction fees, or withdraw cash from a bank-owned ATM using a card that waives the fees.

6) Refuse offers by European hotels and shops to convert your credit card purchases to U.S. dollars. This is a dubious money-making scheme called "dynamic currency conversion'' in which the merchant offers you the "convenience'' of knowing what your bill is when converted into U.S. dollars. The catch is that hotels and shops charge an extra 2-3 percent fee for the "service'' on top of whatever foreign currency transaction fee your credit card issuer might charge. 

7) If you live close to the Canadian boarder,  consider flying out of major cities such as Toronto or Vancouver where air fares may be cheaper. This is due more to competition than currency fluctuations but it's worth mentioning, given moves by some U.S. airlines to dominate key domestic hubs and boost fares.

Example: A recent search for April fares to Rome on Delta showed a round trip fare of $1,563 out of Seattle, Delta's new West Coast hub.The Seattle-Rome fare compared to $1,167 Canadian ($977 U.S.) out of Vancouver B.C., 140 miles north. 

Remember, currency rates fluctuate daily. Check for a historical perspective and current dollar exchange rates against other currencies.


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