Travelers can be known to obsess over their budget when planning a trip. What is the airfare price? What are the hotel room rates? How much for a taxi? What will lunch cost? Reading article after article of budget tips or guides to cities; planning a trip budget is a fun and exciting part of the travel process. With most of the areas of a trip budget being obsessed over, there is often an essential budget area that is overlooked.
International travelers often worry about where to get access to foreign currency but don’t consider the costs associated with purchasing the currency. Many may think, So what? Money is money and only focus on getting their cash from a reputable foreign exchange source. By educating yourself on the best practices for changing currency while traveling, you can find easy savings and enjoy the peace of mind that you aren’t throwing away your hard-earned money.
Let Your Bank and Credit Card Issuer Know You Are Traveling
A standard travel tip, but one that people often forget, make sure you notify your bank and credit card issuer that you are traveling and will be out of the country.
Notifying your bank or credit card allows them to turn off fraud controls on your accounts for the countries you are traveling in, which will avoid unnecessary rejections of your card transactions.
Most major credit card issuers and banks allow you to register your travel dates and destinations in their online banking websites, though if you are uncertain if this offered online or don’t have that option, this can be done over the phone.
If you happen to forget to update this before your trip, use the international phone number on the back of the card and make a call using Skype or Google Phone.
Essential Tip: Beware of Dynamic Currency Conversion
One of the most critical tips to be aware of in this list, yet one of the least known, is dynamic currency conversion. This can reduce the value you receive as part of an ATM or credit card transaction by a significant amount due to extremely unfavorable exchange rates.
Dynamic currency conversion is a service offered by credit card point of sale machines and ATMs in many countries to allow customers to pay in the underlying currency of their credit or debit card.
By choosing to pay in a currency other than the local currency, you will allow the bank that issued the machine or ATM to set the exchange rate, which is often an unfavorable rate when compared with your own credit card network’s rates.
An example of this would be a credit card point of sale machine in France, offering a US credit card user the option to pay in either Euros or US Dollars. By choosing US Dollars, the user allows the machine to set the exchange rate instead of your card network, often resulting in a very unfavorable rate.
The net effect is that the US Dollar amount that hits the credit card statement will be a higher amount than if the original transaction took place in Euros and the credit card network, such as Visa or Mastercard, set the exchange rate.
Travelers will often come across this decision when paying with a credit card at a business and seeing offers to pay in either their home currency or the local currency. The idea that you can pay in the home currency you are more familiar with often seems like the right decision, but in this case, it will add additional cost to the transaction.
The same type of dynamic currency conversion offering is found at many ATMs, and with a quick incorrect button choice, you can lose 5% or more on the transaction, which can add up fast when taking out hundreds of dollars equivalent of local currency.
If you are asked as part of an ATM transaction, if you want to accept an exchange rate, always decline the option. If your card issuer is Visa or MasterCard amongst other networks, you only need to complete the transaction in the local currency, and they will take care of the exchange rate.
No Fees Does Not Mean That It’s a Good Deal
Currency exchange desks and services often advertise the fact that they may have no transaction fees giving the perception that it is a good value, and you won’t have unnecessary charges. While avoiding fees is always a best practice in any transaction, for currency conversion, it does not mean as much.
Currency exchange dealers can generate a profit from both their fees and how they set their exchange rates. By charging a less favorable rate, they can earn more on the transaction for their benefit. Advertising that they don’t charge any fees is a way to attract customers by giving the impression that it is a good value.
If you need cash with no other convenient options available, calculate the transaction based on the rate they are offering you. You can compare to the market rate by performing a quick Google search with the exact transaction details to know whether its a reasonable rate or not.
Compare Your Rate With a Google Search
Even while you are in the middle of a transaction, for a quick reference on the rate of the exact amount you are exchanging, plug the details into a Google search, and you’ll get an instant reference for your transaction.
Google uses Morningstar, a US financial data provider, and publishes its interbank exchange rates as part of its calculator. While these rates are considered a mid-market rate, meaning the middle of both the buy/sell rate, it will act as a point of reference for your transaction.
As you will most likely receive a less favorable rate than the mid-market rate, this is expected and can be used to compare options. If the mid-market rate to buy Japanese Yen with US dollars is 108 JPY to the dollar, one exchange option offering 106 JPY per dollar will be more favorable than the other offering 102 JPY to the dollar.
Use a Credit Card Where Possible
While there is variability among cards, and doing your research for a good travel credit card that fits your needs is worth it, as a general rule, using credit cards while traveling abroad helps to guarantee you the most favorable exchange rates along with all of the travel benefits and card protections that come along with credit cards, along with the earning of points, miles, or cash back.
While small purchases while traveling, such as taxis, subway or train tickets, shops, or food markets, are often easier or even required to be paid with cash, channeling your larger purchases to credit cards provides the best value for both the exchange rate and miles or points earned.
Avoid Foreign Transaction Fees On Credit Cards
It’s been covered already that fees are to be avoided wherever possible, but one typical fee that travelers overlook in their card agreements is foreign transaction fees. These fees, which are typically around 3% depending on the card issuer, apply to any transaction denominated in another currency. While 3% may not sound like much, when settling a $1000 hotel bill in another currency, it results in an unnecessary $30 charge that could easily be avoided.
Many banks offer travel-focused credit cards, often earning airline miles and points, which waive the foreign transaction fees. These cards provide significant savings as they ensure the transaction costs are eliminated, and you’ll be charged as if you were paying in your local currency.
Avoid ATM Fees and Debit Card Foreign Transaction Fees
While foreign transaction fees are commonly waived on many credit cards, debit cards still commonly feature them across most banks. Additionally, ATM fees (both from your bank, and the ATM operator) are still a typical transaction fee that is often waived at your issuing bank’s machines, but rarely at international banks.
Avoid or minimize the fees on your ATM transactions overseas by researching the fees that apply to your account or opening an account to avoid the charges altogether. Some banks even have overseas banking partnerships that will waive your ATM fees at some overseas bank machines. With a few banks offering no foreign transaction fee cards, along with waived ATM fees, well-prepared travelers can avoid most of the costs associated with currency exchange overseas.
Charles Schwab, Fidelity, and Capital One are notable banks in the US offering products that waive a combination of foreign transaction fees, their own ATM fees, as well as ATM operator fees. While the product offerings differ slightly, they are generally the best options for international travel.
Carry More Than One Card If Possible
Traveling with more than one credit card can offer payment flexibility for places where your preferred card network is not available, along with providing additional backup options in the event of a lost wallet or stolen card.
While American Express, Visa, and MasterCard are typically accepted all over, smaller shops may only accept one of those networks. If you are traveling with only one card, you can find yourself in the situation of having to use cash on large transactions or being stuck and unable to pay altogether.
If you have multiple cards, a best practice is to travel with two in your wallet from different networks. As a safety consideration, leave a third card in your hotel safe, whether it is your own or your travel partners. This avoids the low probability, but the devastating scenario of having a bag stolen or lost while sightseeing that happened to contain both person’s wallets, and not having any access to emergency cash or payment options.
Avoid Buying Currency Before Your TripÂ
One of the hardest tips for first-time international travelers to follow, due to the worry of arriving at a destination without any local currency, buying foreign currency before you arrive will often have you paying too much for it due to options available. With ATMs offering the best rates, any overseas transaction will have you paying more for your money.
For those who need peace of mind, consider exchanging a smaller nominal amount like $50 or $100 before your flight so you can at least have enough for a taxi, train, or bus to your hotel.
Skip the Old Fashioned Advice of Traveler’s Checks
Traveler’s checks have long been an extremely safe and effective way to travel with currency overseas, while not being exposed to the theft of large amounts. With the checks being issued by financial services companies like American Express or Bank of America for a check issued in their name that they can exchange for cash at banks or hotels at their destination. If you lost a check, no one else could use it, as ID is required for exchanging the check since it is issued to an individual.
To purchase the checks, banks will typically charge a processing fee, a shipping fee, and then a 1-3% fee for the value of the check. When combined, these fees make the transaction more expensive than using an ATM, as well as less convenient due to the availability of ATMs.
Traveler’s checks were a great option for international travelers before the wide acceptance of credit cards and the availability of ATMs globally. Today you can find the same levels of security traveling only with credit and debit cards, combined with the lower costs, making travelers checks an ineffective option for exchanging currency.
Use Local Currency at Stores or Restaurants When Offered Options
Often small shops may offer customers the option to pay in cash in other currencies. By offering customers the chance to pay in US Dollars or Euros, it can be seen as a convenient option for those that may be running out of the local currency, but will generally be the worst exchange rate you can find on your trip.
This can often be in the form of actual foreign currency prices being listed along with local prices, or exchange rates listed at the cashier to pay in other currencies.
While this is typically not a scam by shop owners, the foreign currency prices or exchange rates will put the customer at a significant disadvantage. You could easily find yourself paying $100 USD for something that would have only cost $85 USD equivalent in the local currency.
Use a Card With the Best Exchange Rate
For precise savings, especially if you will spend a lot on your trip. Compare the different card networks before your trip. While the rates offered by card networks are generally very close, there can be slight differences, and by seeing historical rates, you can tell which card network is the best choice in a given country.
The card network’s rates can often be found on their websites, with some network’s not publishing their rates. Visit the Visa or Mastercard Websites to find their published rates for each day.
Don’t Travel Out of Your Way Too Much for the currency
While the tips in this list should be enough to ensure you aren’t spending too much on your currency exchange transactions, some travelers can obsess too much over getting a slightly better rate at a location that is known to offer reasonable rates.
It’s always good to optimize when it’s convenient, but traveling too far across a city for a slightly better rate comes with a cost of time and money for transportation. So unless you need a significant amount of cash and can’t use Credit Cards on your trip, spending an hour round trip, plus the cost of transportation will not be worth the slight savings to exchange a few hundred US Dollars worth of currency.
Use a Credit Card at an ATM Only in Emergencies
Credit cards offer the ability to take a cash advance from an ATM as a convenient way to get cash from an ATM with your credit card. This is a great backup option if you get stuck or lose your debit card while traveling, though it can be a costly transaction.
Card issuers often charge a percentage fee, just for the transaction, typically around 5%. They will then charge an interest rate, which starts from the date of the withdrawal, with rates often exceeding 25% APR.
Considering the transaction fees alone make this a less favorable option for exchanging cash, this is not worth using as your primary method for currency exchange, though be sure to keep this in mind as an emergency option.
Bring Some Cash to Exchange, But Don’t Exchange It
Another backup option for emergencies while traveling is to bring along $100 or more in cash that you never intend on exchanging. Considering that ATMs are generally the best option for currency exchange, taking your $100 to a currency exchange desk would not give you a favorable rate.
For peace of mind carrying some emergency cash that you can exchange later if you needed it, or make you comfortable if the ATMs did not accept your card on arrival. This allows you to have comfort with a backup option while being able to take it home at the end of the trip and not losing even a small amount of value.
Exchange With a Friend or Family Member
One of the best options for exchanging currency is with friends or family that have traveled to the same destination and have small amounts of leftover money. This can help give you some cash for peace of mind on arrival, help them get rid of leftover currency, and give you both a reasonable rate by using a fair rate for the transaction by plugging the transaction details into a Google search.
This method is also a helpful way to pass on any leftover currency you may have had at the end of your trip, paying forward the convenience to another friend or family member.
Figure Out Your Plan for Cash on Arrival
Depending on where you are traveling or your overall experience traveling internationally, having a plan for your cash needs once you arrive, is key to making good decisions with currency exchange.
Do some research to know what services you will have on arrival. Find out about ATMs in the airport, or currency exchange desk hours if you have an overnight arrival. Most major international airports will have these services readily available at all hours, with most incoming travelers all needing access to these services in one way or another.
With airports located away from city centers in more isolated locations, having plans for your essential cash needs will save you some hassle on arrival. Know the cost of a taxi or train into the city, as well as any purchases you may need on arrival, such as a SIM card.
A reliable strategy is to plan to use an ATM on arrival while holding some emergency cash to exchange at the currency exchange outlet if there is an issue with an ATM or card.
What To Do With Leftover Currency At the End of Your Trip
When you get to the end of your trip, or time in a specific country, its worth having a plan for the small amounts of the local currency you might have left. Having a plan avoids keeping the equivalent of $20 to $50 in an envelope for years since it can be too costly to exchange such a small amount back after you return home.
The best use of a large amount of leftover currency is to settle part of a hotel bill. For example, if you still had $500 left in the local currency, use what you can to pay part of your hotel bill, keeping a small amount for your airport transportation or snacks after security. If you hadn’t prepaid the hotel bill, many hotels would let you settle part of the bill in cash and the rest on your card, so you can even put smaller amounts towards the bill as well.
If you are down to a small amount, consider buying a last-minute gift or souvenir, a snack or drink to take with you, look for a charity donation box, which can often be found in airports, or take the small amount back to exchange with a friend who may be traveling to the same destination. By minimizing the amount of leftover currency at the end of your trip, you can avoid the hidden cost of paying an extra $20 to $50 for cash that you never use.
Avoid Being Too Obsessive About Your Currency Exchange
Traveling abroad can be stressful for experienced and first-time travelers. Don’t let the idea of getting a bad exchange rate overwhelm you and make you too obsessive about avoiding fees or getting a low rate. While it’s worth keeping in mind the above best practices, and utilize them as part of your travel planning, save some time and energy once you arrive to focus on the purpose of your travels. Don’t go too far out of your way to reach an ATM that will waive the $5 ATM fee when you could better spend your time enjoying your destination.
