Exchanging foreign currency abroad: tips from experts

14 February 2018

Traveling abroad is costly. Air tickets and lodging alone can be expensive, without even taking into account the cost of food, entertainment, local transportation, shopping and more. So you wish every dollar to stretch as far as it can. That requires having the correct combination of payment tools in your wallet, as well as learning a way to avoid international fees and get the best foreign exchange rates.

There are a number of tools, tips and tricks in this article that we have designed to help you get the most bang for your buck. Here are our top tips.

Avoid exchanging at the airport

Most huge and medium-sized airports, as well as some seaports, provide currency conversion services (often known as “Bureau de Change”) via Travelex or another retail foreign exchange company. Transaction costs, as a matter of practice, are higher at these currency exchange firms. However, you should consider exchanging a small sum of money at your arrival airport or seaport to tide you over until you can search out a cash machine or bank. Failing this, you will not be able to pay for your ride to your hotel or for your first meal in the host country.

Avoid exchanging at the airport

An international or transaction ATM fee

It is an extra fee while utilizing a foreign ATM. Most banks charge higher fees for international withdrawals. You will either pay a flat rate (between $1-5) or a percentage of your total withdrawal (generally between 1-3%). Though some banks have high fees to use foreign cash machines, it is still nearly always the most inexpensive way for exchanging your bucks. In case your bank has international cash dispensers or partner banks abroad, you can sometimes save some coin on your cash withdrawals. That is true even at Bank of America, which charges just 1% at member banks and no other fees. Capitol One Bank charges nothing for a foreign ATM withdrawal, while other financial institutions such as Chase charge 3% on top of every withdrawal.

Free is a fallacy

“Free cash withdrawals abroad” do not exist anywhere, so beware of such advertisements on foreign ATMs. Moneychangers often use the same scheme, offering “no commission fee” currency exchange. These services are free of any fees, but they are giving you a really bad exchange rate (between 4% and 9% of the total amount you are exchanging to change money into a foreign currency).

Use credit cards for large purchases

Most credit cards charge a foreign-transaction fee of between 1% and 3% whenever you buy something abroad, but this is still the safest and often the cheapest way to make a large purchase. For example, some banks, like Capital One, still do not charge anything extra for foreign purchases beyond the 1% that Visa and Mastercard charge. Other banks, including Citibank, really gouge consumers by charge a 3% foreign-transaction fee even if the purchase is made in U.S. dollars.

Ask your bank to raise your daily withdrawal limit

Ask your bank to temporarily increase your withdrawal limit so you can avoid making multiple trips to the ATM and paying multiple fees if you need to access more cash than is allowed in a single withdrawal transaction.

Avoid cash advances on your credit card

If you take cash from a foreign ATM, you will pay a fee. You will be charged a percentage on top of your withdrawal as a foreign-transaction charge; and you will start to pay very high interest (sometimes up to double the regular interest rate you are charged on your credit card) the moment the cash reaches your hands. It is a pretty bad deal. Avoid it at all costs, unless you have no other choice.

Avoid cash advances on your credit card

Beware dynamic currency conversion

Some shops, restaurants and ATMs abroad offer a service called Dynamic Currency Conversion. This means that when you pay by credit or debit card at a shop or restaurant or withdraw money from an ATM you are given the option of paying in the currency of the country you are in.  Always choose to be charged in the currency of the country you are in. Do not let the credit card company or ATM do your currency conversion for you — you will pay much higher conversion rates and transaction fees if you do.

Traveler’s checks are still available, but uncommon

Traveler’s checks offer travelers excellent security for the funds they bring abroad, but they involve some extra cost, as well. You may pay an initial fee to purchase the checks, although banks sometimes waive these fees. Moneychangers usually add an extra fee when you want to exchange traveler’s checks, as opposed to cash, or they offer a less-advantageous exchange rate.

While there is no foolproof system for beating bank charges whenever you leave the country, there are a few ways to minimize them. First, use a currency converter to familiarize yourself with the current exchange rates in the country you are traveling to, so you can know what to expect. Second, send money to yourself in advance of your trip by sending yourself a money transfer ahead of time for pickup at a participating agent location at your destination. Finally, remember the tips above to help avoid paying more than you need on your next vacation.

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