If you travel across borders, you’ll need to exchange your U.S. dollars for the foreign currency of the country you’re visiting. When you come back, you’ll exchange any excess currency back into U.S. dollars again. This can be an expensive addition to the cost of your trip, if not done properly.
For example, if you just go to your bank and exchange $1000 for Euros today, you’ll lose about 7% to 9% to the bank’s bid/ask system and fees. If you return and exchange some of it back to dollars in that same bank, you’ll lose another 7 to 9%, essentially giving the bank up to $180 of your money.
The bid / ask system simply means there are 2 prices: one for buyers and one for sellers. If the quote for US Dollars vs. Swiss Francs is 1.1005 / 1.1510, it means that you can get about $1.10 in Swiss currency for each 1 USD, and you can sell them back for a cost of $1.15. $1000 transferred into Swiss Francs would get you $1,1005 francs, and selling back those 1,1005 francs would get you $955 US Dollars. Exchanging currency can be costly. Here are some tips to help reduce the cost of exchanging foreign currency when traveling.
Use your ATM card when you land in your new country. This should be an ATM debit card and not a credit card. The ATM fees will be high, but the exchange rate will be much better. Find the maximum you can take out and take it. Most countries allow about $750 per day, but it also depends on your bank. You’ll pay about $5 in ATM fees, but you’ll save more than $35 in the exchange rate (on $750), as interbank rates for electronic transfers are the best rates. Large banks, such as BOA and Citibank charge about $8 plus 1%, so avoid using those cards. Look around for a bank with low fees.
Restrict your credit card use! The fees are exorbitant You can pay as much as $25 in exchange fees for just a $30 purchase. You’ve almost double the item’s cost. You won’t see this fee until you get back home, and what a shock you’ll find. Only use credit cards for your hotel, and pay for this from the US, if possible. If it’s a hotel chain, such as Marriott, book the room from their US office and pay with your credit card. Everything else on your trip should be paid in cash.
Never exchange foreign currency at your local home bank in the US. It’s the worse rate around. Most US banks have higher fees and the worst exchange rates in the world.
Never exchange at your hotel, as most hotels also have a bad exchange rate. They are in the hotel business, not the foreign exchange business. Also, try to avoid exchanging money at the airport. The rate at the airport won’t be as good as in the city. If you do need to exchange cash currency, look for a bank downtown in the city where you’re staying. Many Asian cities also have reputable “money changers” with small offices. These have the most competitive foreign exchange rates.
Some prepaid debit cards offer a favorable exchange rate. Look into buying one of these before you travel, after you explore their fee structure.
American Express travelers checks and prepaid Gift Cards are both safe and carry a low rate. They’re sometimes problematic to use, as you’ll have to hunt to find a bank that takes either of them, but it’s an option you should explore.
Finally, many online foreign currency services, such as Travelex, can deliver currency to your door before your trip. These often have an acceptable rate, but the insured FedEx delivery charge will eat into the savings on any amount under $1,000. You then have the risk of carrying all that cash on your trip.
Added tip: If you’re planning to travel back to this country in the next year, keep any excess currency in a safe place, rather than exchange it back to US Dollars. You can use this money on your next trip.
Before you travel, notify your bank of your trip. Alert them as to which cities you’ll be using the ATM card in, so they don’t panic and cancel your card. I’ve had several cards canceled due to this misunderstanding, and had to wait 2 days each time for a replacement card to be sent to my hotel.