Locking In Exchange Rates Before You Travel

Launched earlier this month by Travelex, a London-based foreign exchange company, the Cash Passport allows prospective travelers to lock in exchange rates for euros or pounds before crossing the Atlantic. The prepaid foreign currency card functions like a debit or credit card and works at ATMs and retailers all over the world. (The card itself is issued by MasterCard (MA)).

For Americans who love to travel, the card can be a good way to hedge against future declines in the dollar. After all, the greenback's more than 20% decline against the euro over the last three years has yet to deter many Americans from traveling abroad. Financial forecasting firm Global Insight recently put together a report for AAA forecasting a 2.6% increase in the number of Americans traveling overseas this summer compared with last summer. Western European destinations in particular will see some of the biggest boosts in U.S. visitors: 6.7% more to France; 4.7% more to Italy; and 6.6% more to Ireland.

While the Cash Passport provides some certainty in a world where exchange rates constantly fluctuate — you buy your euros today and know exactly how much that four-euro espresso will set you back — it's still a gamble. "You might bet right and end up doing better than you would if you didn't buy the card," says Tim Winship, editor at large for SmarterTravel.com. "But there's also an equal possibility you'll bet wrong and come out the loser."

To help keep your identity and money safe, the Cash Passport isn't linked to a bank account and doesn't carry sensitive identification details like your Social Security number. It's also protected with a personal identification number and your signature. If the card gets lost or stolen, the balance can be wired to you within 20 minutes, depending on where you are, says Maria Brusilovsky, communications manager at Travelex in New York. Travelers can also request to have two cards connected to the same account, but with different card numbers. That way, if you have to cancel one lost or stolen card, the second card will still work, says Brusilovsky.

Forgoing pricey currency conversion fees
Whenever a purchase is put on a credit card abroad, the credit-card company charges a currency-conversion fee, which typically ranges from 1% to 3% of the foreign purchase price. (Capital One (COF) and Commerce Bank (CBSH) don't charge this fee.) Travelers using the Cash Passport avoid these fees, which can rack up.

Locking in a predictable exchange rate
When budgeting for your vacation, it helps to know exactly how much you'll be paying for everything from breakfast to a guided tour at the Louvre. Say you load your card with $2,000 before you leave on your Parisian getaway. On the second day there, an interest rate move by the Federal Reserve causes the dollar to tumble and the euro to climb. But since you already have a Cash Passport with $2,000 worth of euros at the previous rate, the now-weaker dollar has no impact on your spending.