Cash, credit cards, and PINs in Iceland

“Cash register” by James Brooks  is licensed under CC BY 2.0.

Questions we will answer (or attempt to answer) in this post are:

1. Do I need to bring or get cash for my trip to Iceland?
2. Where can I get the best exchange rate on my cash?
3. What do I need to do to use my credit card in Iceland?
4. Which credit card is best to use in Iceland?
5. What about a PIN for chip and PIN in Iceland?

Do I need to bring or get cash for my trip to Iceland?

There is no need to purchase Icelandic Krona before your trip. Typically you will pay a hefty premium to purchase Krona in your home country– up to 10%. Most currency exchange places (AAA, TravelEx) don’t even offer Icelandic Krona.

If you do find a place that will offer an exchange for Krona, look carefully at the exchange rate. There may not be any fees, but they may offer you a very poor rate. As a quick example, to the right is the current rate AAA will give you for Euros: 1 USD = 0.8247 EUR. [This is the rate from a couple of years ago. The current US Dollar to Euro rate can be found here.]

So for each US dollar, you get 0.8247 Euros. But the actual exchange rate at the same time was 0.87757. (The link will provide you with a live quote.) That’s about a 6% premium you are paying. This actually isn’t terrible for this type of service. But once you are in Iceland, you should be able to pay 1% or less. That puts an extra $50 in your pocket on a $1,000 transaction.

So don’t bring any cash. The next question is whether you even need any cash at all? A credit will work in just about any situation for purchases large and small. In fact, there are only a handful of reasons you would ever need cash:

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1. Bus fare in Reykjavik. To pay for a bus fare in Reykjavik, you need exact change. I guess you don’t need exact change, but you need cash and you won’t get anything back if you overpay. You could buy several bus tickets at a convenience store, and pay with a credit card. You could also get a Reykjavik City Card, which includes unlimited bus fare for the length of the card. This can make sense if you will be visiting several museums; the bus fare would be a nice bonus. And it avoids the issue of paying cash for bus fare.
2. You want to avoid a credit card transaction fee. More on this later. But many cards charge you 3% per transaction. You can maybe save a little bit if you exchange cash at an ATM, but very little. And that’s assuming you won’t get any miles or cash back.
3. Emergencies when your credit card is declined. Or when the credit card machine isn’t working. It happens!
4. Farm stands. We’ve found several self-service stands selling fruit, jelly, and banana bread. There is a box there to put your cash in.
5. It’s fun.  Look at that money! It’s cool. It’s different. And, especially if you’re traveling with kids, there’s something nice about having some cash. It lets the kids pay for things in Iceland. And it helps to make the trip feel a little more “exotic.”
6. Kids. Iceland is a very safe country; we let our kids walk to the local hot dog stand by themselves, and we gave them cash to buy lunch.

So I think it’s nice to have some cash, but for the most part, it’s just for fun. In Iceland, the saying goes, if you use cash you are either a tourist or a drug dealer. [Edited may 2016: For one house we stayed in, we were asked to pay in Euros or Icelandic Krona. This was a reservation we booked on Booking.com.]

Where can I get the best exchange rate on my cash?

Again, skip the currency exchange stations, and head for the ATMs. Unfortunately, you’ll likely pay a fee both to your bank as well as the bank that operates the ATM. For your bank’s fee, see this Nerdwallet post about foreign ATM fees. My bank charged me a flat $5, which is 1% for a large $500 withdrawal. Maybe you’ll have a better bank!

Here’s what you’ll pay the Icelandic banks, though these can and do change over time:

Landsbankinn will charge you a minimal exchange rate (about 0.3%), but I don’t know if there is any way to actually get this rate. Maybe if you walk into a bank branch with US dollars? But if you use an ATM, they charge you a 0.75% fee for “Withdrawal from ATM, with card issued by another bank.”

Arion Bank charges 2% (“Debit card withdrawal from foreign bank or ATM.”)

Íslandsbanki looks like they only charge a flat 165 isk fee, which could be a real savings.

Here’s a real-life example from our trip: I took out cash from an Íslandsbanki ATM. I was charged a 165 krona fee. And, as far as I could tell, the exchange rate looked very good. I certainly didn’t pay 1% more than the actual exchange rate. Given that rates fluctuate in real-time, I cant swear that I wasn’t charged a 0.25% fee or something. But from what I could tell, I only paid an extra 165 krona. That’s a great deal on a large withdrawal! Then, when I checked by bank statement, Wells Fargo had charged me $5 for a foreign ATM withdrawal. Oh well.

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What do I need to do to use my credit card in Iceland?

You should call your credit card company and provide them the dates for your trip. This decreases (but does not eliminate) the chances that your card will be flagged with a fraud alert. Some companies have an automated system for this; others will have you speak to a representative.

You can also ask them about the foreign transaction fees you will pay. There are two separate fees here: The bank that issues your card (Bank of America, Barclays, etc.) can charge 1% or 2%. And both Visa and Mastercard charge a 1% foreign transaction fee. (We’re ignoring American Express and Discover here, as they are much less used in Iceland. You’ll want to have a Visa or Mastercard card.) If your credit card doesn’t advertise its low foreign transaction fees, or if it’s not advertised as a “travel card”, odds are you will pay 3% total: 2% from the bank and 1% from Visa or Mastercard.

Which credit card is best to use in Iceland?

Credit card companies are slowly eliminating foreign transaction fees; you can call your credit card issuer to find out what the terms are on your card. But it seems that, if your card is advertised as a “travel” card, you’re in luck. Not only will most of these cards not charge a foreign transaction fee, but they also don’t pass along the 1% fee from Visa and Mastercard. You’ll end up paying no fee at all. But be careful; some of these cards will just say “you won’t pay us a foreign transaction fee” but they still pass along the 1% from Visa or Mastercard.

Here is a list of the foreign transaction fees charged by various banks. (Scroll about halfway down the page to see “Major issuers’ foreign transaction fees.”) Capital One is a major outlier here- they don’t charge a fee, AND they don’t pass on the 1% fee from Visa and Mastercard. USAA is another company that doesn’t charge a foreign transaction fee, but they may still pass on the 1% from Visa and Mastercard.

What about a PIN for chip and PIN in Iceland?

Now things get complicated. Credit card companies in the United States are switching over to a “Chip and signature” system, where your credit card has a small smart chip embedded in it. In Iceland, they use a “Chip and PIN” system, where you need to enter your 4 digit PIN during each transaction. In nearly all situations, your old magnetic stripe card, or your newer chip and signature card, will work just fine. You’ll stick out as a foreigner because you’ll have to sign the receipt, but your card will work.

The exception can be situations where you are purchasing something in an unattended transaction.  Gas stations outside of the Reykjavik capital region are the most commonly cited example. (The automated parking machines in the Harpa Concert Hall also don’t work with cards that aren’t chip and PIN.) Without the PIN, you may not be able to get gas. If you find yourself in this situation, first try to hit “Enter” or “Cancel” (without typing any PIN) and see if it works; this is starting to work more frequently in 2017 and 2018. If that doesn’t work, your only option may be to hope someone else drives by, have them pay for your gas, and then pay them in cash. Hey, a good reason to have some cash!

You can try to call your credit card company and ask them for a PIN. Every credit card company I have called will happily offer to send me a PIN in the mail. But, critically, I am not convinced that all of these PINs are actually a PIN for chip and PIN. I fear that some (most?) credit card companies are just offering a PIN that serves as a password to enhance security when you call in to customer service. Unless the letter you receive with your PIN clearly says this will work for chip and PIN foreign transactions, you should assume you can’t get gas at an unattended gas station.

Your best bet here is to buy some prepaid gas cards. You’ll need to choose a specific brand of gas, and then make sure you find a gas station that matches. Or, buy a couple of different kinds, each enough for a tank (or a half tank) of gas. If you haven’t used them toward the end of your trip, you can spend them on snacks or souvenirs, or let the kids binge on some gas station hot dogs.

N1 is the most recommended brand, and as we drove through more remote parts of Iceland, N1 was definitely the brand we saw the most. While this list of gas prices indicates that Orkan stations are generally less expensive, N1 is still your best bet. So the first time you come across an N1 station, or if you see prepaid gas cards anywhere else, go ahead and buy a gas card. Worst case, you can use it to buy some hot dogs or Icelandic candy for the kids at the end of your trip.

Your debit card and PIN should also work; you may want to call your bank to notify them of your travel so you don’t trigger any fraud alerts. I still recommend you have a prepaid gas card on hand until you can confirm that your debit card does indeed work at an unmanned gas station. We had no problem using my debit card for gas.

What do you think? Will you bother getting cash during your trip to Iceland?