Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
The following is a guest post from the editorial team at Card Hub, a leading credit card comparison website.
Wasting money – It’s what we all strive to avoid and why many of us read a blog like My Personal Finance Journey. While there are endless ways people waste their hard-earned funds, one of the most frustrating is currency exchange while on a vacation to another country, which can add up to 15% on the cost of a trip.
There’s something about overpaying for a supposedly equivalent amount of money that just doesn’t sit right with me, and I’m sure many of you feel the same. So, what’s the best way to approach currency exchange, and how can we avoid losing cash in translation? Let’s find out.
Current State Analysis of Foreign Currency Exchange
The name of the foreign currency exchange (FXCM) game is minimizing fees and finding the lowest possible exchange rate, which means shopping around. Luckily, you’ll have a bit of a head start in this endeavor as we at Card Hub recently conducted a study of the exchange rates offered by the market’s major players: 15 of the largest consumer banking institutions in the U.S.; Visa and MasterCard, the most widely accepted credit networks in the world, and Travelex, the world’s biggest airport forex operator. Overall, this study provided three major insights into consumer currency exchange that will help guide your shopping:
1. Credit cards save you the most money on currency exchange.
2. You should never convert currency at the airport, if you can help it.
3. Bank exchange rate offers vary widely, so shop around.
More specifically, no international fee credit cards on the Visa and MasterCard networks can save you 14.7% on currency exchange relative to Travelex and 7.9% as compared to your average bank. Therefore, getting such a card is the first step in minimizing the cost of overseas travel.
That’s not the end of the story, however, because you’re going to need cash when traveling abroad and Credit Card 101 says that a credit card cash advance is a terrible idea given the high fees and interest rates. You should therefore use a low-foreign-fee ATM card when you land.
There are a few additional details to keep in mind in order to bring your currency exchange savings plan to fruition.
- First, it’s important that you open a no international fee credit card before booking any flights or hotels because the foreign fees that 90.2% of credit cards charge apply to any transactions processed outside the U.S.
- Second, make sure to notify your bank of your travel plans in order to avoid suspicion of fraud and resulting account difficulties. Last but not least, though it might be tempting, decline any merchant’s offer to covert your bill into U.S. dollars or you’ll be left paying an exchange rate that would make an airport currency exchange service’s offer look attractive. Other than that, all that’s left is to enjoy your travels.
How about you all? Did you know that credit cards have the most favorable foreign currency exchange rates? What strategies do you and your family employ to save money on converting currency?
Share your experiences by commenting below!
Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article
- Great article here! Since my family and I like to travel to foreign countries for vacations, currency exchange is an important topic for my personal finances. It is also one to which I’ve given a bit of thought before.
- Typically, in order to save money on foreign currency exchange fees during vacations, my family does the following:
- Withdraw the majority of the cash we need for the trip before we travel at our home bank branch. This saves money on foreign ATM fees. Then, when we get to our destination, we split up the money among the four of us, with each of us carrying a bit of the cash in our money-belts for security.
- Because all of our credit cards carry the typical 3% foreign currency purchase fee, we try to only purchase “big-ticket” items using our credit card.
- If we need to exchange our US Dollars for the local currency, we generally always try to do so at a bank (because we’ve found banks have better rates than currency exchange booths).
- @ Results of currency exchange study – Very interesting study! I would definitely like to see the complete methodology and results of the study for further reference. My thoughts on the results are listed below:
- I completely agree that 1) bank exchange rates vary (so shopping around is very good!) and 2) that exchanging money at the airport will cost you more.
- I definitely didn’t know that credit cards provide the most favorable foreign currency exchange rates. I would have thought that one would pay a premium for the convenience of having the credit card do the conversion without you having to take any action. I’d like to see the complete details of the study for this part especially!
- @ No-International Fee Credit Cards – I have heard of these credit cards before, but I have resisted applying for one because I really only travel about 1-2 times per year outside of the US. Because of this, I don’t think I would use the card enough to make it worth its while. In addition, I would suspect that since no-international fee cards have this added no-fee perk, certain other features such as cash-back rewards, APR, etc, would be less favorable than normal credit cards.
- However, if I were to get a no-international fee credit card, I would make sure to get one that 1) has no annual fee and 2) has a rewards program.
- A list of cards that fit these criteria can be found here.
- Examining this list, there are 8 credit cards that fit the two criteria described above. Of these 8 cards, none offer cash-back bonus levels as high as my current favorite credit card for domestic spending – The Chase Visa Freedom Card.
***Photo courtesy of http://www.flickr.com/photos/epsos/5902557577/sizes/l/in/photostream/