Personal Finance

Going on Vacation? The Do's and Don'ts of Currency Exchange

The best ways to exchange money.

With the proliferation of credit card acceptance, we need to carry cash less and less, but it’s often a good idea to stash bills in your wallet or purse while traveling abroad. And like with all other spending decisions at ValuePenguin, we want to make sure we are getting the best deal we can when exchanging currency. We want to spend our hard earned vacation dollars on food and experiences, not fees.

There will be fees of course. No matter how you change money, it’s still a service being provided, so it’s a service you have to pay for. But it’s not a service you have to overpay for. If you are smart about exchanging your money, both when and where you do it, you can save yourself some money, time and hassle. It's an important consideration when you look at the average cost of your next vacation.

Why

If you are traveling to a major city, many places will accept a card. If you're going off of the beaten path, however, and all you have is plastic, you might be in some trouble.

Ground transportation from the airport to your destination is one of the likelier places you'll need cash. Even in a cosmopolitan city like New York, cabs taking credit cards are a fairly recent development. If your destination does have a ride-sharing service like Uber, not all airports allow them to pick up or drop off.

One of the best reasons to travel is to try the cuisine of a different country. Many restaurants will take cards, but what about the socca vendor in Nice or the som tam vendor in Bangkok? They will likely only take cash.

Many of us like to charge even small amounts on our credit card; it's easier to track expenses that way and saves us having to carry cash. But if you don't have a credit card that doesn't charge a foreign exchange fee, those little expenses are costing you more, often as much as 3% more.

That isn’t the end of the world for charging small amounts, but what if you charge your hotel room to a card with that fee? For example, say you spend 135 pounds per night for your London hotel. At that rate, a seven-night stay would set you back 945 pounds. But you used a credit card with a 3% foreign transaction fee, and it cost you an extra 28 pounds. That’s a couple of pub lunches down the drain.

When

You definitely want to have some cash before you leave home. The exchange centers in airports tend to have high service fees and poor exchange rates. Travelex is a currency exchange service available in many airports. We checked their exchange rate against the official inter-bank rate.

An example: If you converted $500 to Euros, the rate could be $1 to 0.8070 Euros. That would give you 403.5 Euros for your $500. By comparison, the inter-bank rate could be $1 to 0.8909 Euros. That would give you 445.39 Euros for your $500. There is a fee to change money, but why would you want to exchange money at a business that is going to give you less than the actual exchange rate?

You might think you’ll get a better exchange rate by just taking out cash at an ATM once you land. And as we noted above, you may need cash to get to the hotel. If you’re travelling to many European destinations, you’d be wrong. The airport ATMs used to be owned by European banks, but recently those ATMs have often been replaced by machines owned by Travelex. So you’ll be getting the same poor exchange rates at those ATMs too.

When you arrive at your destination is the best time to take out the majority of the cash for your trip. ATMs will charge some fees. Your bank may charge a $1-5 fee for using and out-of-network machine and sometimes charge an additional 1 to 3% of the amount you withdraw. The owner of the ATM may charge a flat fee too. But you are still getting cash at the inter-bank rate and not at whatever rate the ATM owner decides to exchange at.

Where

A business abroad that is offering to exchange currency is going to charge you a little extra in order to make a profit. You might think a bank would be the ideal place to change money, either one at home or one at your destination. They aren't going to exchange money for you for free; some charge as much as 10% to exchange less common currencies. The average charge for exchanging common currencies is 3.5% at a bank.

Your best bet is to simply take cash out of a local ATM. Even if your bank doesn’t have branches abroad, they may have affiliate banks who won’t charge you fees to use their machines. For example, Bank of America customers traveling to Montreal will be advised that Scotia Bank will be fee-friendly. Be sure to find an ATM attached to a bank, even if it's not your bank. The fees will probably be lower, and it will be more secure than using a random machine in a restaurant or bar.

Be sure not to use your credit card to get cash. That counts as a cash advance and the interest starts to accrue the second you withdraw it. Only use your ATM or debit card.

Also make sure to call your bank and credit card companies before you leave to let them know where you will be visiting. It will save you the hassle and embarrassment of your card being frozen when the bank and credit card companies see unusual transactions coming through.

At the End of Your Trip

Try to withdraw only what you will need. This way, you won’t have leftover cash that needs to be re-exchanged upon your return.

If you have too much leftover cash, your best bet will be to exchange it back at your bank. It won’t be ideal; the rates to exchange it back to dollars is no better than it was to change it to whatever currency you needed. Keep in mind that most banks won’t exchange coins -- only paper currency.

If you have Euros left over and plan to travel in the future, we advise you just to hang onto them. Currently 19 countries use the Euro, so you have a lot of chances to spend those bills again one day. And who couldn’t use a good excuse to go back to Europe?

Andrew Pentis

Andrew is a former Associate Editor at ValuePenguin. He focused on an array of personal finance topics, from money management to career development.