If you spend, say, $2,000 at your foreign destination, the worst exchange rate will cost you something around $100 more than the best rate. Given all of the other opportunities to overspend, that isn't a huge deal. Still, travelers hate even a small gouge when it's unnecessary. Although I've done several previous columns on this subject, I still get more reader inquiries about foreign exchange than any other topic. So here, for what I hope is the last time this year, are my best suggestions about exchanging dollars for foreign money.
1. The best overall way to exchange is a no-fee ATM currency withdrawal with a debit-ATM card. I know of three no-fee systems:
If you have an account at Bank of America, you can make unlimited withdrawals, with no fees, from ATMs operated by Barclays (UK), Deutsche Bank (Germany), Paribas (France), Scotiabank (Canada), and Westpac (Australia).
- If you have an account at Citibank, you can make unlimited withdrawals from Citibank ATMs in various foreign countries. Check the Citibank website for locations. Unfortunately, Citibank has very few ATMs in such popular destinations as France, Italy, Thailand, and the U.K.
- Some small banks absorb the usual fees for foreign withdrawals, usually with a limit on the number of no-fee uses. Ask your bank about its policies.
2. If you don't have a no-fee ATM card, you do almost as well billing local purchases to a credit card that doesn't assess a large foreign surcharge. You lose no more than about one percent in exchange costs with a Visa card from Capital One or USAA bank, or a MasterCard or Visa from one of the smaller banks and credit unions that issue such cards. Check around for a smaller bank in your area. You lose about two percent with an American Express card.
Most other banks that issue MasterCard or Visa cards, as well as Diners Club, add a surcharge of three percent to foreign billings. Although two-thirds of that is pure gouge, the total three percent is still less than you'd lose exchanging currency or travelers checks. Since my earlier report, MBNA, which used to add only one percent, has gone over to the dark side and now adds the three-percent gouge.
3. For the cash you need, your best bet is a debit-ATM card. Since you pay a fee of up to $5 for each withdrawal regardless of the amount of money, you can minimize your exchange losses by withdrawing at least $200 worth of foreign currency each time.
4. Exchanging U.S. currency or travelers checks at banks or independent "bureaus de change" generally costs anywhere from four to 10 percent in exchange rates and fees. But you can't use foreign currency travelers checks to avoid that fee, since you pay an equivalent fee when you buy the checks.
5. Finally, here are a few exchange methods to avoid:
- Don't let a foreign merchant bill your credit card in U.S. dollars rather than foreign currency. That way, you'll get gouged twice: once when the merchant gives you a poor exchange rate, and again when your bank adds a surcharge.
- Don't exchange at U.S. airports before you depart. Over the years, those have been among the worst rates I've seen.
- Don't use a credit card to withdraw cash—you'll pay fees on the exchange plus a withdrawal fee plus interest on a cash advance.
- Don't exchange at a hotel desk—I've seen hotel desks give as much as 20 percent less foreign currency than you'd get at the wholesale rate.
- Forget travelers checks unless you're paranoid about security issues with plastic.
It's easy to keep your exchange losses to no more than three percent. And with the right combination of ATM and credit cards, you can cut losses close to zero.