The Best Way to Exchange Foreign Currency

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Cheapest Way To Exchange Currency

The tickets overseas have been purchased, the destinations established, and the kids are excited.  Now you are forced to watch with horror as the US dollar continues to lose its value compared to most of the major currencies.  While you cannot control the value of the US dollar, you can minimize the damage by finding the best ways to access your cash out of the country.               Photo by Mikespiaki

Find current and historical foreign currency exchange rates:

To find out the currency exchange rate for your desired country, simply go to a site like Onada.  You can get the current and historical ‘interbank rate’ which is essentially the prime rate.  This gives you an idea of what your currency value is before any buying or selling fees.  Typically, venues will add anywhere from 0% – 5% to the interbank rate allowing them to make a profit on the transaction.  The way you save money is by using the method that gets you closest to the interbank rate while offering you the security and convenience you prefer.

Exchanging Foreign Currency: Where to Exchange Foreign Currency

Travelers Checks:

There was a day when Travelers Checks were synonymous with cash and travel.  It was safe and easy to use money overseas.  But a new day and age in travel demands better alternatives.  Travelers checks do offer the comfort of knowing they can be replaced if lost or stolen.  However, travelers checks have extra fees and relatively poor exchange rates.  In addition, they are time consuming to acquire and a hassle to use.

Foreign Currency Exchange Banks:

The British newspaper, the Telegraph, warns that getting your money exchanged at an airport currency exchange counter is the most expensive way to exchange your money.

Foreign Currency Exchange Using Credit Cards:

Credit Cards are by far the most convenient way to purchase your items overseas.  Most offer high levels of fraud security if lost or stolen.  The biggest drawback with the credit card is the exchange rate fees.  Here is a sample listing of the fees at some larger credit card companies:

  • Capital One – 0% – Capital One has very sensitive overseas fraud monitors in place.  Always call and pre-notify them of your travel plans before leaving the country.
  • American Express – 2.7% – Compared to Visa and MasterCard, American Express is accepted at fewer locations overseas.
  • Citibank (Citicard) – 3%
  • Chase – 3%
  • Bank of America 3%
  • Schwab – 0%

Withdraw Cash Using Your Bank Card at an ATM Overseas:

ATMs have been growing in popularity for overseas travelers.  Most countries overseas have an abundance of ATM locations.  With the exception of one airport, I have not traveled anywhere recently where there was not at least one ATM in the airport.

There are two types of fees to be aware of when using your ATM card overseas.  First, you might get charged a flat fee by either your home bank, overseas bank, or both.  Your home bank can let you know what they charge and the overseas bank will ask you to confirm the fee before proceeding.  The second charge is the percentage that will be added to your withdrawal as a foreign exchange fee.   For example, if they add a 3% foreign exchange fee and the US dollar value of your withdrawal is $100, you would pay a $3.00 fee.

Sample ATM fees (assessed only by the home bank):

  • ING Direct – 2% with no transaction fee.
  • Citibank – if you use your card in their network they charge you 3% and no transaction fee.  If you go outside the network you pay $1.50 per transaction.
  • Bank of America -  If you have a Bank of America checking account with a debit card you can withdraw local currency, with no added fees, from ATMs operated by Barclay’s Bank in the U.K., BNP Paribas in France, Deutsche Bank in Germany, Santander Serfin in Mexico, Scotiabank in Canada, and Westpac in Australia and New Zealand. Best of all, you are not assessed the usual one-percent exchange fee.  Be cautious, however, because they will charge you $5 per ATM withdrawal if you get cash outside the network listed above.
  • Local Credit Union – be aware that every credit union has their own fees. You may wish to contact your local credit union to see their rates.

I highly recommend you confirm this information with your local bank. If you exchange foreign currency a lot you might need to change banks to help minimize the exchange fees.

Here’s a full list of credit card and ATM related fees.

Prepaid Travel Money Card

A prepaid travel card, the TravelMoney Card, functions much like a credit or debit card and is available through Visa.  Of course, the primary difference is you pre-purchase all the available funds before leaving home.  It includes common features you would expect – accepted anywhere Visa is accepted, ATM cash access, and zero liability for fraudulent charges.  You predetermine the amount you want added to the card ($100 – $9,999).  The card can be used both domestically and overseas until the balance has been spent.  The card imposes a 3% foreign transaction fee when used overseas.  The card costs $4.95 to purchase.  Then there are additional fees for 12 months of inactivity and a replacement card.  You can get the details here.

Use an Online Foreign Currency Provider

There are many online foreign currency providers but I use XE. Once you have joined and set up an account, you can have most major currencies sent to you via bank draft, electronic funds transfer, or wire.  They publish their exchange rates in real time so you can compare it to the interbank rate to determine the value of your transaction.  There is no fee to use the service (depending on the method you choose to have your fund delivered); however, they include a foreign exchange fee in the rate.  To find out the exact amount for your currency just compare the exchange rate they are offering to the interbank rate.

Best Ways To Exchange Foreing Currency

  • Avoid travelers checks, banks, and foreign exchange counters. The fees, rates, and hassle make them a poor option.
  • For credit cards, I carry a Capital One Platinum credit card.  They do not charge foreign exchange fees.  If you travel frequently, consider getting either this card or the Schwab card as they both have 0% foreign exchange fees.  The advantage of the Schwab card is the 2% cash back.  Also, do remember that you need to have a brokerage account with them.  Of course, Free Money Finance has posted about the Schwab card.
  • For ATM cash withdrawal I use my credit union card which charges 1%.
  • Prepaid travel MoneyCard – this would be a good way for parents to send money with their children who are traveling overseas.  The fees are more, but when you send a 16 year old on a school or mission trip, who wants them holding a credit card or a pocketful of cash?  Otherwise, I would avoid the MoneyCard.
  • Online Foreign Currency Provider – I use XE when I want to lock in the exchange rate.  Have you ever planned a vacation only to watch the exchange rate increase?  The only way to guarantee your budget will work is to prepay for the currency so you know what exchange rate to expect.  Of course, things can go the other way and the exchange rate might drop.  Consider your knowledge, experience, and comfort level. I do not invest in foreign currencies, but there have been occasions when I have planned a trip when an exchange rate was at its lowest in 3-5 years.  In those circumstances I often pre-purchase my funds using XE.

My strategy for accessing cash overseas:

  • I limit the use of Credit Cards to car rentals and other large purchases.  Credit cards are just too convenient.  Who wants to watch their spending on a big family vacation?  No one. Typically people buy an item and promise to sort it out when they get home.  Credit cards do not track your spending in real time.  They tell you what you spent, not what you are spending.
  • The remainder of my spending is done with cash that I have gotten from an ATM or an online foreign currency provider.  Cash is the easiest way to track your budget on vacation.  Here is what I do.  Let’s say your budget is $1,000.  Go to the bank and get $100.  You don’t need to keep receipts or anything because you will know when you spent the $100 (when the money is gone!).  When the money is gone, get another $100.  Repeat the process until you have spent all your money.  It is an easy way to keep on top of your budget to be sure you don’t overspend.  Moreover, it is an easy way to track all of those little expenditures along the way – tips, taxis, snacks.

Bon Voyage!  Enjoy your summer travels and minimize the financial impact by finding your best option for accessing your cash overseas.


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    regards, Phil

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