Where to Find the Best Exchange Rates

September 5, 2013

exchange ratesStretching your horizons and visiting foreign lands is an enriching experience. Unfortunately not everyone takes U.S. dollars when you travel abroad, and even if they do you have to constantly be aware of the exchange rate they are giving you.

It is almost always better to deal in the local currency than to take dollars with you. You are guaranteed to have your payment accepted in the local currency.

That leaves the problem of how to acquire that currency. Exchange rates can vary widely and the end result is a dramatic difference in cost.

How to Avoid Outrageous Exchange Rates

For starters, you can ignore the exchange rates listed in the paper or online. Those rates are a good baseline but are used when massive banks lend each other money.

Your rates will be higher because the intermediaries have to make a profit as well.

That having been said limiting their profit means less money wasted on exchange costs and more money to spend on your trip.

Withdrawing Cash When You Arrive via a Debit Card

Believe it or not most banks will let you use your debit card overseas at an ATM. You’ll need to know your ATM in numeric form (many ATMs overseas are digits only, no letters). And you also need to let your bank know about your travel plans ahead of time so they don’t think fraud has occurred on your account.

Going to an ATM through one of the major networks such as Cirrus or Plus will mean you pay a ATM withdrawal charge ranging from $2 to $5, plus an exchange fee of about 1%. This means you’ll want to withdraw larger sums of cash over fewer transactions rather than going to the ATM every single day to cut down on the ATM fees. This puts you at a little bit of risk because that cash can be stolen.

The plus side is that you can get an inexpensive exchange. The downside is you have to wait until you get to your destination to have local funds. That can leave you a little uneasy – what happens if your debit card doesn’t work when you get there?

If you go this route it is probably a good idea to bring some cash with you whether U.S. dollars (to exchange locally) or a small amount of that country’s currency so you aren’t left completely unable to pay for anything while you get your financial situation sorted out.

Use a No-Foreign Transaction Fee Credit Card

Your next best option is to have a no-foreign transaction fee credit card to use on all of your spending.

The key here is the lack of a fee for foreign transactions. Most credit cards don’t have this feature and you’ll end up paying the profit on the exchange rate plus a 3% fee.

However, some cards specific to travel do carry this benefit. You might pay a slightly higher exchange fee (perhaps 2% instead of 1% like with your debit card), but there are some extra benefits as well. You’ll get consumer protections on your purchases (assuming your card covers those purchases in foreign countries) and not have to worry about being stuck with excess currency at the end of your trip.

Don’t Go to the Bank or a Currency Exchange

You get terrible exchange rates by going to your local bank or even to a currency exchange inside an airport either in the United States or in the foreign land. Your two best options are above.

Have you exchanged currency before? Tell us about your experience!


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Kevin Mulligan is a debt reduction champion with a passion for teaching people how to budget and stay out of debt. He's building a personal finance freelance writing career and has written for RothIRA.com, Discover Bank, ING Direct, and many others.

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