Exchanging money for foreign currency is something we all take for granted. In fact, most of us have a very lethargic attitude towards it, perhaps because the rate we pay is linked to economics – a confusing subject at the best of times. So, we go to a money exchange booth, accept the rate they give us and carry on. But that is a big mistake!

Saving money on exchange rates and on banking fees is not as complex an undertaking as you might think. There are just two important numbers to keep in mind: the fee levied by brokers selling you the currency; and the exchange rate quoted (and whether you gain or lose from it). Understanding how to make them work in your favor can save you real money!

In this chapter, I’ll share some of the most valuable tips to saving money on exchange rates and banks, from how to find the best rates to the truth behind “commission free” transactions, to the perils of opting for “Dynamic Currency Conversion”. Is relying on your credit card such a good idea? How wise is using ATMs overseas? You’ll find the answers to these questions, and more!

Each tip contains links to articles by experts, which I recommend you check out. For a more general overview, you should read “The Best Ways To Carry Money Overseas,” published on IndependentTraveler.com, which highlights the pros and cons of a variety of options.

To get an idea of the truth behind exchange fees, I recommend the “2014 Currency Exchange Study” carried out by CardHub.com.

And of course, if you have more tips on how to save money on exchange rates and banks, which you’d like me to share with readers, simply email me at info@FreeTravelIdeas.com.

Know the Exchange Rate Every Day

Even if the whole idea of trading $100 for 7,965,000 Laotian Kip makes your head spin, knowing the day’s exchange rate will make you more able to get the most money for your money.

If you know the day’s rate, you’ll know approximately what your exchange should be when you go to the money changer. This is absolutely necessary, even if you aren’t carefully following the market changes. If you don’t know the daily rate when you walk into the money changer’s office, you could find yourself getting royally ripped off.

Finding the rate is no problem. You can check in the local paper, go online to XE.com, or use one of the many currency exchange Smartphone apps, like:

  • XE Currency (Android, iOS)
  • Currency+ Free (iOS)
  • My Currency Converter (Android, iOS)

For more options, check out iMore.com and its 2014 guide to the “Best Currency Conversion Apps for iPhone”.

Keep in mind that the posted “market exchange rates” will always be lower than those listed at a money exchange booth or bank because the market exchange rates do not include commissions or fees, and are usually exchanged in extremely high volumes.

I also recommend taking a calculator with you to do your own exchange calculations. It may seem unnecessary, but in countries more prone to corruption it’s useful to establish the conversion sum and avoid a costly scam.

Not All Exchange Booths are the Same

I cannot stress enough how much convenience can be a costly luxury. For that reason, I strongly advise that you avoid currency exchange booths in popular tourist locations, like airports and train stations. But it is also true when selecting one of several exchange booths in one location.

A couple of years ago, Mint.com published an article titled “The Best Ways to Exchange Currency Abroad” which stated that competition between currency exchange businesses means that “when they’re in busy tourist areas, negotiating a better rate is usually possible”. So, all you need to do is ask and compare.

You can check their exchange rates on their display board, but the best way to find out the difference is to ask straight out. So, say: “If I give you $100, how much will you give me back in [the local currency]?” They quote the figure then you inquire at the next booth, and see what the difference is.

Ask the locals if they know where to get the best rate. Many will tell you of a local money changer. In Vietnam, women with wads and wads of dong can’t be missed. If you do change money on the “black market” take precaution both with the exchange and the risk of theft.

When I traveled to Indonesia, currency exchange scammers were everywhere, and the rule I used was to always be the last person to count the money and to touch the money before I left the exchange house. This insured that no false calculator or slight-of-hand would cut into my exchange rate.

Foreign currency exchange is just one of many scams that experts warn travelers in Asia especially to watch out for. Check out About.com’s GoAsia section for information on “Common Scams in Asia”, as well as a look at “How to Exchange Money in Asia”.

Don’t be Fooled by “Commission Free” Exchange

The basic idea of commission is pretty straightforward. The money exchange brokers have to make a profit, so they add a small charge to your transaction for the service they provide. So, “commission free” exchanges make little sense, but that has not stopped the majority of companies promoting exactly that. But don’t be fooled.

On the face of it, “commission free” money exchange transactions are the dream option. Commissions normally range between 1% and 4%, depending on the bank or broker. Commission free exchange should mean you avoid paying that extra percentage, thus saving you money. In fact, exchange companies just hide their cut behind a higher exchange rate. It’s the same fee, just all rolled into one rate.

There has been a backlash with UK currency experts FairFX carrying out a survey and reporting that 93% of people wanted 0% commission promotions to be band. But the deal is still commonly advertised.

Avoiding the trick is not that difficult. Compare the international exchange companies in advance, but go back to basics and check out the two most important factors:

  • The current exchange rate
  • The fees, which are listed in the small print

If you are abroad at the time, simply ask them directly how much local currency you’d get for $100, then compare with the next one

Don’t Exchange Money at the Airport – Use Local Banks

It’s the worst kept secret amongst travelers, but worth repeating. Airports are the worst place to change money. This is true not just at your destination airport overseas, but at your local airport when flying out too – and when looking to exchange foreign currency on your return.

All of the experts agree that the chances of getting a competitive rate at an airport money exchange desk are particularly low. According to NomadicMatt.com:

“The rates you see at airports are the worst and never, ever use an exchange bureau there unless you absolutely have to.”

Meanwhile, Brokepedia.com advises amongst its “7 Ways To Save Money At The Airport” that:

“[Change your money] before you go. Transaction fees for currency exchange are notoriously high at airports.”

According to MillionMileSecrets.com, the fees that the airport-based currency exchange desks charge can mean paying 27% more than the official inter-bank rates. Read the article in full for a breakdown of the charges that ensure such poor conversion rates.

There are two alternatives to last-moment currency exchanging:

  1. At your local bank or currency exchange a couple of days before your departure.
  2. At a local bank after you arrive. These usually offer competitive exchange rates – unpadded by hidden fees and commissions. But you still have to shop around a bit to get the best rates.

Depending on your travel destination, most local banks will display their currency exchange rates on large signs, either indoor or outdoor. So your research is really just to read the signs and find the best deal.

Rates typically fluctuate day-to-day or even morning to afternoon. I recommend you keep an eye on the numbers even when you don’t need to. Then, when the exchange rate is good, you don’t miss out.

Ask Your Bank to Buy Back At Selling Rate

Returning home with a lot of cash can cost you as you have to pay again to transfer the foreign currency back into dollars – especially if the currency rate has changed. But some banks and exchange outlets are willing to take back your excess currency at the same rate they sold it to you.

There are some conditions though:

  • you must have a receipt proving the exchange rate you originally received
  • there may be a commission involved, so ask in advance
  • coins are rarely accepted, just currency bills

Depending on how much cash you have left over, the fee maybe high enough to counter any financial benefit from selling back to your bank or currency exchange broker. MindYourDecisions.com reveals the fees typically charged by some of the main options, which is important to know when hoping to “Find the Best Option For Exchanging Foreign Money In The US”.

But I recommend the simple solution – not traveling home with leftover cash! Treat yourself on the final night of your vacation, or at the airport before you board your plane home. There are several alternatives you can do with your remaining foreign cash, some of which DailyFinance.com have listed in their article “How To Make The Most Of Your Leftover Foreign Currency”.

For more information on exchanging currencies, check out XchangeOfAmerica.com.

Save on ATM Fees

Withdrawing cash from an ATM is certainly convenient, but these transactions can be subject to fees. That might seem reasonable, but the fee you pay can be shockingly high. That’s because the figure is essentially three charges in one – from your bank, the ATM’s bank, and a commission for exchanging your currency into the local currency. This can mean extra fees of between 4% and 8%.

Avoiding these excessive fees can help to drastically reduce the overall cost of your vacation. Here are my tips to avoid:

  • Check out the Global ATM Network, a group of major banks that have opted to waive ATM fees completely.
  • Withdraw larger sums, so you´re charged less frequently (for safety reasons, don´t keep all your money in the same place)
  • Use your bank´s ATM machines
  • Research in advance that your bank has ATM machines in your travel destination
  • Consider changing to a debit card that does not charge ATM fees for use at another bank’s ATM
  • Use a debit card that does not charge fees for foreign currency exchange

Keep in mind, banks frequently change their rates, so verify all rates before you decide on a strategy or make a switch to another card.

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