Travel Money- Getting the most for your buck

With all of the recent hullabaloo about the Brexit, I watched the exchange rate for dollars to pounds or euros slowly drop. Since I’m also starting to plan my next trip to Europe, it got me thinking about whether to buy a bunch of euros now so I’m ready for the trip and so I get a better rate than I otherwise would. I did a little digging, and I learned a few things about what and what not to do when you’re dealing with foreign currencies.

First, you need to understand the exchange rate. If you google “euro to usd”, Google will tell you the current rate. This is the interbank rate, which is what banks charge each other to trade millions of dollars. This is not the rate that you or I would get, as I quickly learned. The interbank rate as of 30 June 2016 is $1.11 to €1.00. If I go to my Bank of America account to buy Euros, they’ll charge me $1.17, so it’s about 6% more. If you need $1,000 changed, that’s a difference of about $60, which is nothing to laugh at. There has to be ways to get a better rate. And there are!

1- ATMs will give you the best exchange rate available, with a few caveats. Most importantly, don’t use your credit card to take out a cash advance. This should be your last resort, whether you’re traveling abroad or at home. Credit card companies love for you to use their card to get cash, because the interest starts accruing as soon as you take out the money. You don’t get a grace period as you do with purchases. Also, use a debit card that refunds your fees. Charles Schwab has a no-minimum balance online checking account that comes with an ATM card with no ATM fees. It’ll take a few days to get it set up and get money transferred into the account, so plan ahead. Make sure you tell them that you’re going to be traveling. You won’t get the interbank rate, but this is your closest option. The account also has a low interest rate, so I wouldn’t use this as your primary checking account.

2- Credit cards will give you the second best exchange rate, assuming that you’re not paying foreign transaction fees out the wazoo. That’s where the Chase Sapphire card comes in. No foreign transaction fees, no annual fee for the first year. As with the ATM card, don’t forget to let them know you’re going to be traveling. I have other credit cards and ATM cards that I use when I’m at home, so my Schwab ATM and Chase Sapphire cards live in my travel suitcase, ready to be used whenever I find myself abroad.

3- The third best rate is to load up at your local bank. If you exchange enough money, they may waive some of the fees. It’s still not the lowest rate that you have available to you, but if you expect to need a lot of cash (paying for your hotel, sightseeing, etc), you can get as much as you want without worrying about daily ATM withdrawal limits. Just remember that if you travel with more than $10,000 in cash, you need to declare it when you arrive in most countries.

4- Traveler’s Checks are still a thing, although I have never used them. I think you can get them at the bank or at AAA. Unlike a fat stack of cash, if you lose them, you’re not out anything. But they aren’t accepted everywhere and there are certain fees associated with them, so they’re not ideal. All things considered, I don’t see many times I’d need or want to use traveler’s checks.

5- But can’t you change money at the exchange desk at the airport? Why yes, Zippy, yes you can. And that’s where you’ll get the worst rates of all. Even if you buy them online through one of those services, you’ll still get a crappy rate. If I exchange $1,000 at my bank, I’ll get €855. If I order $1,000 in euros from Travelex, they’ll give me €820. Just for comparison, if you are able to get the interbank rate, you’d get €900. Use Travelex only if you have no other choices, and that includes getting currency exchanged at places that are similar to Travelex but don’t carry that name, like at hotels, airports, tourist information desks, etc. If you have to talk to someone in person in the country you’re visiting, it probably falls into the “don’t exchange there” category.

6- One tip that I read that I didn’t know about was that you should always pay for things in the local currency, if you have the choice when you pay by credit card. You should be offered the choice, and paying in the local currency will help ensure you get the best rate. I’ve been asked that question when paying for things, and I never knew the “right” answer; I’d just pick one or the other depending on my mood. Apparently, picking dollars is the dumber option of the two.

7- And last, but not least, travel with a little cash. In my travel bag, I keep a little extra money in USD. If something goes wrong and my credit and ATM cards aren’t working and I’m stuck somewhere, at least I’ll have a little cash to get a taxi or a hotel room or whatever I need to be comfortable until I get back on my feet. Hopefully you’ll never need it, but if you do, you’ll be glad you have it.

For the folks who can’t be bothered to read the entire post, here’s the tl;dr

– Use an ATM card with no ATM fees (or refunded fees) to get cash when you’re in country
– Use a credit card with no foreign transaction fees for purchases
– Don’t use currency exchange services in country
– Get cash at your bank before you leave if you need an amount that will exceed your ATM limits
– Carry some of your home country’s currency, just in case everything else fails
– Some people still use traveler’s checks. Who knew?

If you’d like to do more reading on the subject, I found these articles which have some good information:

Fodor’s
NBC News

24 Sep 2016 Edit: I just returned from Brussels, and I have verified that it is better to pay in local currency when you pay with a credit card than to pay in dollars. I made a purchase for €12.00. The credit card machine offered to let me pay in dollars, which it said would be $14.08. The current bank-to-bank exchange rate would have made it $13.47. I checked my Chase Sapphire credit card statement, and I paid $13.51. So not as good as the bank-to-bank, but far better than the rate they offered had I paid in dollars. It looks like I saved about 4%, which isn’t much on a single transaction like this, but it can add up over time. And all you have to do is pay in local currency. That’s a pretty easy way to save some money.