Exchanging currency may sound like a simple task, however, it’s filled with a lot of nuances. If you’re not careful, the currency exchange process can expose you to unnecessary fees. Getting familiar with the terms and practices around currency exchange will help make the process easier. Check out these four tips to help make exchanging currency easier!
1. What Costs Are Associated With Currency Exchange?
There are two main charges you have to pay when exchanging currency. The first charge is called the spread. Whether you use a bank or an exchange service, they’ll always pay less for the currency than they’ll sell it to you for. This difference is their profit which is called the spread. You can get better deals by taking the time to compare rates; however, there’s no way to avoid the spread completely.
The second cost associated with currency exchange are fees. Depending on where you’re exchanging your currency, there may be an additional fee on top of the spread. Usually, these fees are charged per transaction or a percentage of the total amount of money you want to convert. Try and avoid fees unless paying the fee would provide you with extra convenience.
2. Pay For Things In Local Currency
If you’re asked if you want to pay in your own currency or the currency of your destination, always opt for local currency. Most stores have a terrible exchange rate which ends up costing you even more money on top of the spread and the fee. The additional charges may not seem like much, but they add up over time and end up costing you extra money.
3. Stay Away From ATM’s
Unless you have a U.S. dollar debit card (or a debit card native to your destination), ATMs are the worse way to exchange currency. The rates that you’ll pay at ATMs are significantly higher than what you’ll find at banks or foreign exchanges. ATMs almost always have a hefty additional fee that makes the exchange rate irrelevant.
Using ATMs makes sense if you’re taking out large amounts of money. A $5 fee isn’t so bad if you’re taking out lots of money and won’t need to use the ATM again for a while. ATMs are also useful if you do your banking with a military bank since they usually waive international fees.
4. Choose Your Credit Cards Carefully
If you’re Canadian, using your credit card in other countries comes at a substantial cost. Usually, with a credit card, you have to pay a fee in addition to the spread. Strategically choosing which credit cards you use for currency exchanges will help you save money on unnecessary fees.
A common option is a no foreign transaction fee credit card. You can use this card just as you would your regular card; however, you won’t have to pay a fee. One of the benefits of a no foreign transaction fee credit card is you can pay your credit statement in Canadian dollars or your local currency.
If you travel lots, it may be worth it to consider getting a U.S. dollar credit card. This is usually a good alternative for those who have a large amount of U.S. currency. Keep in mind; you’ll need a U.S. bank account in order to get a debit card.
Using these tips will help you save money when exchanging money. Try and stay away from using currency exchanges in airports or popular tourist areas. The rates in these areas are usually significantly higher. Keep these tips in mind to help you save money exchanging currency at your destination.