An international trip requires currency exchange at one point or another, which can become an expensive process without the know-how. Trading currency at a hotel or an airport's currency kiosk can hit your pocket hard due to unfavorable exchange rates and steep fees. Hence, it is essential for travelers to know how to convert currency cost-effectively either before traveling or while abroad.
Why do currency exchange fees exist? The fees charged by financial institutions or currency exchange services for converting one currency into another play a massive role in the global financial landscape. These institutions must be compensated for the risk they bear as currency values fluctuate. Also, they need to cover significant operational costs linked with maintaining infrastructure, technology, and accurate exchange rate systems through these exchange fees.
Indeed, financial institutions are businesses running for profit, and currency exchange services are one of the ways they generate revenue.
So, how does one avoid these fees? Begin by finding out what the fair exchange rate is for your travel destination. Ordering cash online is a less expensive option, although the exchange rate might not be as favorable as with your bank. The best option is to use a foreign ATM or your bank's ATMs overseas.
Moreover, if carrying too much cash is a concern, check if your bank has ATMs at your destination or its major cities. Don’t forget to use an airport's ATM upon arrival.
Once back in the U.S., convert any leftover foreign currency to U.S. dollars at your bank or credit union. Some financial institutions will not accept foreign currency. If you find yourself with leftover foreign currency, consider converting it at an airport kiosk or a store at your travel destination before heading back home.
The digital age has seen a decline in travelers carrying checks and money belts. Instead, carry a no-foreign-fee debit card and a no-foreign-transaction-fee credit card from banks like Chase, Bank of America, and Capital One. Abstain from using your credit card to receive foreign currency via cash advance to avoid higher interest rates.
It's crucial to confirm whether your travel destination accepts credit or debit cards before leaving. Also, let your financial institution know about your travel plans to avoid any difficulties.
When abroad, try avoiding payments in U.S. dollars as much as possible to avoid unfavorable exchange rates and fees.
To ensure you get the best rates, it's important to plan your foreign currency exchange before leaving for your trip. Staying updated about economic events that could impact currency values and making use of tools like limit orders or rate alerts will help you secure the most favorable rates.
Remember that currency markets operate 24 hours during the business week, with a closure over the weekends and public holidays. This leads to lower liquidity, resulting in wider bid-ask spreads, making currency transactions costlier.
For convenient and inexpensive currency exchange services, consider banks, credit unions, and online currency exchange platforms. Try to stick to ATMs and no-transfer-fee credit card spending and avoid exchanging currency in hotels, airport kiosks, and making purchases with U.S. dollars to avoid unfavorable exchange rates and fees.
By taking the time to be well-informed about exchange rates and planning before your trip, you are bound to save significantly.