Currency Exchange for the Smart Traveler

Think you can use your ATM card everywhere while traveling? Think again. Explore the basics of currency exchange before you go, and you might avoid expensive surprises.

It’s a common mistake. First-time travelers head overseas for the trip of a lifetime armed with only an ATM card. Sadly, these newbies spend the majority of their trip calling their home bank to find one location that will actually take their ATM card. Excitedly they rush to the very far location, only to be disappointed (yet again) to find that the machine accepts a 4-digit PIN only, or won’t issue cash to non-residents.

Understanding currency exchange while traveling could have avoided this mess. For many, the concept of traveler’s checks and currency exchange surcharges is as foreign as the land they’re headed to. Although the money exchange rules are constantly changing, it’s important to get a handle on them before you step on a plane. It may save you time, money and heartache on your next trip.

ATMs and Currency Exchange Machines
Rule of thumb is that ATMs tend to offer better exchange rates than traveler’s checks. This due to a relatively low interbank rate, the interest rate charged by the bank you’re withdrawing from to your bank for the “short-term loan”, a.k.a. your withdrawal. Some banks might tack on conversion fees for currency exchange from US dollars. If the same fee is charged if you withdraw $50 or $300, go for the larger amount instead of hitting the ATM twice and getting charged twice. Plus, don’t forget the classic non-bank ATM fees we all know and loathe.

If you decide to go with ATMs while traveling, do your homework before you go. Call your bank to see if your card is usable in your destination and where. Many foreign ATMs only accept 4-digit numeric PIN, so make sure you have one set up before hand. Some countries might not have ATMs or won’t give money to non-residents. It’s best to carry a credit card and/or traveler’s checks as a backup.

More Money Exchange Conversion Fees
As mentioned earlier, currency exchange conversion fees are charged by the ATM logo on your card and/or bank to change US dollars into local money. Plus, when making purchases with your debit card in foreign amounts, you might also encounter overseas transaction fees. Should a merchant convert your bill into US dollars, you will be charged a sizeable currency exchange conversion fee by the merchant. To save yourself from these currency exchange fees, ask to be charged for your bill in the local currency, only use partner bank ATMs, and switch banks if you have to before you leave.

Credit Card Fees
Credit cards have all sorts of tricks when it comes to currency exchange transactions. Some of these currency exchange fees include a commission for the currency exchange itself (purchase or cash withdrawal), as well as an international transaction fee on top of that. There may also be another type of currency exchange fee particular to cruise travelers that is charged for being “cross-border”, even if the transaction is in US dollars. And for those who make an international purchase and end up returning it, you might be charged a currency exchange fee on the refund as well.

On the plus side, it’s rumored that some credit card issuers won’t post your transaction until the currency exchange rate is in your favor. Check to see if this is the case.

Travel Money Cards
Companies like American Express and Visa are offering prepaid travel money cards for travelers. For a fee, you can load up this card with money (up to a certain limit) and use for purchases or cash withdrawals overseas. The problem with these cards is the exorbitant currency exchange fees. You’ll be charged currency exchange fees for every withdrawal, all local bank fees and reloading fees. Plus, don’t try to use these cards in a country not associated with the travel money card, or else you’ll get more fees.

Traveler’s Checks
Major banks are still issuing traveler’s checks in US dollars and foreign currencies. Your best bet is to buy traveler’s checks in small and large denominations (not everyone will cash the big bills) in the foreign currency of your destination (to avoid currency exchange fees). Treat traveler’s checks like cash, keep multiple copies of your receipts, and if traveling with someone you trust, have them be the second signature required to cash the check.

Currency Exchange Tips
• Call each bank of the cards you’ll be using abroad to verify fees and ATM locations. Print maps of those locations.
• Nasty currency exchange fees for your situation? Switch banks.
• Currency exchange rates at airports, hotels and tourist change bureaus are horrible. Buy a modest amount of local currency before you leave to cover you until you can get to a bank in your destination.
• Because exchange rates change quickly, exchange your currency as seldom as possible.
• Bring money in a mix of forms to cover money exchange surprises.