What to consider when exchanging currency

Exchanging currency is vital to international travel, whether you’re visiting for leisure or business. Understanding the nuances of currency exchange can help you avoid costly mistakes and make the most of your travel budget. 

Before you exchange money, you should know how to choose the right place to exchange your money, time your transactions for the best rates and estimate the money exchange fee.

Why knowing about currency exchange matters

Currency exchange involves converting one country’s money into another’s. Because currencies have different values from country to country, exchange rates fluctuate based on factors like political stability, economic performance and global market conditions.

Without proper knowledge of currency exchange, travelers risk losing money on unfavorable exchange rates, excessive fees and even fraudulent practices. It’s important to know how currency exchange works and where to do money exchanges so you can get the best deal.

Currency exchange fees

Exchanging money abroad often comes with various fees, so it’s important to understand what you might encounter. 

Flat fees

Some exchange providers charge a flat fee per transaction. These can make smaller exchanges expensive relative to the amount you’re converting. Always ask about any flat fees in advance, and consider exchanging larger sums to minimize the impact of this fee.

Percentage fees

Many currency exchange providers charge a percentage-based fee on the total amount exchanged. This fee structure can become costly if you’re exchanging large amounts of money, so compare percentage-based fees before making any decisions.

ATM withdrawal fees

If you’re withdrawing money from an ATM abroad, your home bank and the foreign bank may charge withdrawal fees. Some banks refund these fees, while others may partner with international banks to provide fee-free withdrawals. 

Before traveling, check with your bank to understand what ATM fees you might face and whether they offer any reimbursement options.

Foreign transaction fees

Foreign transaction fees are often charged when using credit or debit cards abroad. Depending on the card issuer and payment network, these fees can range from 1 percent to 3 percent of the transaction amount. 

Many travel-focused credit cards offer no foreign transaction fees, which can help you save money when making purchases abroad.

Check your card’s terms and conditions before you travel to avoid surprises. If your card charges foreign transaction fees, consider limiting its use and opting for other methods, like cash or prepaid travel cards.

Best places to exchange currency

Not all currency exchange options are equal, especially for travelers. Some places offer better rates and lower money exchange fees, while others provide more convenience. Here’s a breakdown of the most common currency exchange options.

Banks and credit unions

Banks and credit unions are generally the best money exchange options, offering competitive exchange rates and transparent fees. Many banks provide foreign currency services for their account holders, and some even offer currency at a better rate when you order it in advance.

If you have a major bank account, the bank may offer international ATM withdrawals with little to no fees. Banks tend to have the most secure exchange process, so you can avoid the high fees and markups that are common at airport exchange booths.

Currency exchange kiosks

Currency exchange kiosks, often found at airports and tourist destinations, are convenient but have significant drawbacks. They frequently offer lower exchange rates and higher fees, taking advantage of travelers who need quick cash.

If you need to use a currency exchange bureau, only exchange a small amount to cover immediate needs and seek out better rates at a local bank or through an ATM once you reach your destination. Always check the exchange rate and fees before completing any transaction at these kiosks to avoid unnecessary charges.

ATMs abroad

Using ATMs to withdraw local currency in your destination country is one of the most convenient ways to get cash while traveling. Many banks are part of global ATM networks, allowing you to withdraw money with minimal fees if you use ATMs associated with their partner banks. However, it’s important to check with your bank ahead of time to understand what fees may apply to international withdrawals.

When using ATMs abroad, stick to machines from reputable banks and avoid independent ATMs found in tourist-heavy areas or small shops. These often have higher fees and less favorable exchange rates. It’s also a good idea to notify your bank of your travel plans to avoid having your card frozen for suspicious activity.

Prepaid travel cards

Prepaid travel cards offer an excellent solution for travelers who want to manage currency exchange with ease. These cards allow you to load multiple currencies before you travel and lock in exchange rates to avoid rate fluctuations while abroad. 

Prepaid travel cards can be used like regular debit or credit cards but with the added benefit of lower foreign transaction fees. They also help limit spending, as you can only use the funds preloaded onto the card. However, be aware of hidden fees such as inactivity, ATM withdrawal or reloading fees.

Common currency exchange mistakes

When exchanging currency for travel, it’s easy to fall into traps that result in unnecessary expenses. Here are some common mistakes travelers make and how to avoid them.

1. Exchanging money at airports and hotels

While airports and hotels may be convenient places to exchange money, they often have the worst exchange rates and highest fees. Airport kiosks, in particular, are notorious for inflating rates, sometimes marking them up by as much as 10 percent compared to what you’d find at a local bank or ATM.

To avoid these high costs, exchange a small amount of money before your trip to cover immediate expenses like transportation. Once you arrive at your destination, use ATMs or banks for more favorable rates.

2. Using dynamic currency conversion

Dynamic currency conversion (DCC) allows you to pay in your home currency when using a credit or debit card abroad. While this may seem convenient, it usually comes with a much worse exchange rate and additional hidden fees. Whenever possible, always opt to pay in the local currency of your destination to avoid unfavorable rates.

DCC also gives merchants more control over the exchange rate, meaning they could use a rate that benefits them more than you. When paying with a card abroad, always make sure you’re being charged in the local currency to get the most accurate rate.

3. Timing your exchange poorly

Exchange rates fluctuate daily based on global market conditions. If you know you’ll need to exchange a large sum of money, it pays to keep an eye on exchange rates before your trip. Use tools to track exchange rates and exchange your money when the rate is in your favor.

For travelers planning ahead, some banks and online services allow you to lock in exchange rates before traveling, helping you avoid losses due to unfavorable fluctuations during your trip.

How to maximize savings on currency exchange while traveling

When traveling abroad, currency exchange fees can quickly eat into your budget. You can use certain strategies to help you save, avoid common fees and make the most of your money while exploring new destinations.

1. Plan ahead for international trips

Before heading overseas, research your destination’s currency and exchange rate options. Many banks allow you to order foreign currency ahead of time, saving you from the poor exchange rates and high fees at airports or in tourist-heavy areas. If your bank offers international ATM withdrawal with low fees, consider using this option to access local currency while traveling.

Financial institutions sometimes offer special travel accounts or debit cards with reduced fees for foreign transactions. Check with your bank to see if they offer international-friendly options that can help you save money while abroad.

2. Credit cards with no foreign transaction fees

Credit cards that offer no foreign transaction fees can be a great asset when traveling internationally. These cards often offer competitive exchange rates, and some even provide travel rewards or cash back on purchases made abroad. Using a credit card for most of your international purchases can help protect you from currency exchange fees and fraud. 

3. Limit currency exchange at high-fee locations

When traveling, try to avoid exchanging currency at locations that charge high fees, like airports, hotels or currency exchange kiosks. These places often inflate exchange rates and charge large commissions, reducing the value of your money. Instead, stick to local banks or ATMs for better rates and lower fees. 

If you have to exchange currency at one of these places, try to exchange only what you need immediately and find a better location later.

The bottom line

Currency exchange is an essential part of international travel, and getting it right can save you a lot of money. By planning ahead, avoiding high-fee locations and choosing the right method for exchanging money, you can stretch your travel budget further and minimize unnecessary costs.

When traveling internationally, avoid airport kiosks and hotel exchange desks, opt for ATMs and reputable banks and consider using prepaid travel cards or credit cards with no foreign transaction fees to simplify your currency management. With a little preparation, you’ll be able to get the most out of your money while exploring the world.