Travel money tips the banks don’t want you to know (from a former banker)

As a former banker and a current traveller, I’ve checked out heaps of options for how people convert their money: travellers cards, cash converted at home, at the airport, in the country, travellers cheques, international bank transfers, paying with debit or credit cards, withdrawing from ATMs using a home card – there are hundreds of providers who want to do you the pleasure of taking your home currency and gifting you funds that will gladly service you in your destination.

But why do so many businesses want a piece of the foreign currency pie? Because each one is skimming the fatty cream. So, my friends, I hereby bestow upon you three things to take notice of when you’re converting your hard-earned dollars:

1. The Method
2. The Exchange Rate
3. The Fees

Let’s break these babies down, one by one.

1. The Method

There are hundreds of different places to switch your cash, and in the next section I’m going to tell you how the earn their money and what to look out for. But for now, I’ll just give you some of the main options to convert your moolah:

Converting/Ordering cash at a home/foreign bank: Heaps of people take this option because it makes them think they are organised. Walk into your bank prior to your departure, let them do the converting, and walk away with some pretty foreign cash in an envelope within a few days. This is great if you want to be organised, not so great if you want bang for your buck.

Converting/Ordering cash at Travelex (or similar): Heaps of people get stuck on this because the red, white and blue Travelex signs in your town or looming at you from the airport scream legitimacy – and as the world’s largest foreign exchange bureau that’s understandable. Heaps of hotels, or even tourists strips also offer small chain or independent converters. But, this is my least favourite pick of the lot because you pay through the nose for the convenience. Not necessary, as you’ll find out later.

Travellers Cheques: these are basically dead unless you’re over 70. They’ve been replaced by…

…Taking a travel currency card: On paper, these look great. Lock in your exchange rate prior to your departure by loading money onto a prepaid card into your nominated currency – then just use it as you would a credit card when you’re overseas. However again, the exchange rates for these don’t work in your favour.

Paying with a credit card while overseas: Just take your standard credit card, Visa Debit, or Debit Mastercard over with you and swipe away, then get cash out at the ATM!

Transferring money: For this option, you need to have a bank account in the corresponding country, so unless you have this, or you have a very trustable friend, it’s probably not an option for most. Some money wiring services may let you collect it on the other side, but it’s probably not ideal in any situation.

2. The Exchange Rate

The exchange rate you’re probably already familiar with. It’s the bit you hear at the end of the news when it says “One U.S. dollar buys 89 Euro Cents.” Sounds pretty easy right? Wrong. The broadcasted exchange rate is only a guide. Remember this.

What you hear on the news comes is what is called the mid-market rate – think of it as a wholesale price. But of course, once this price filters through banks, foreign-currency exchange points like Travelex, and credit card providers they all want their share for the service they provide. And believe me when I say, some will take more than others. For example, let’s say you have $1000 US Dollars and want as many Euros as you can get for your upcoming Euro-trip.

I’ve calculated a few different ways of getting cash, but all you need to look at is the end number – I’ve marked this in green. 

In a worst case scenario, if you went to Travelex to exchange your thousand bucks you would get almost €65 Euros (or $73 USD) less. That’s a nice meal out for two people in most European cities, up to three nights accommodation in a hostel, or three-and-a-half entry tickets to the Louvre.

Lesson? Check the exchange rate, because all are not equal.

3. The Fees

Ah, young grasshopper you are not done yet! Because where there are exchange rates there are fees.

Some conversion stores will try to lure you in with temping signs saying “0% TRANSACTION CONVERSION FEE.” But you will not be tempted, no, because you know if they are not charging a fee for the conversion, they’ll rip you off on the exchange rate. And after reading the last section, you already know better than that.

Always be weary of the fees. Some places will charge a flat fee, no matter how much cash you are converting. Others will charge a percentage fee – think 1.5-3%, although others may well charge more – so if you’re converting $1000 USD, you could end up losing $15-$30 USD just to perform the transaction. Others will charge nothing – but your exchange rate will suffer.

Remember though, if you’re looking at percentages it all depends on how much you’re exchanging. If it’s $1000 USD, maybe it’s better to go hunting for a better offer to save that $15-$30 USD. But if it’s a crisp $100 USD bill, you may end up arguing over just a few dollars. Pick your battles.

When it comes to using a credit card, Visa Debit, or Debit Mastercard, you need to check what your bank is charging – the standard going rate is again around 1.5% – 3% of the total transaction amount. And then don’t forget about ATM fees – in some cases you will get a fee from your home bank AND the ATM operator, PLUS the conversion fee. Always check your own bank’s fee schedule (sound scintillating, right?) before deciding to rely on your card.

So what can you do to get the most bang for your buck?!

I’ve tried and tested most of these methods and my winner is always taking a credit card/Visa Debit/Debit Mastercard. Why? If you can find an option that offers no international transaction fees you don’t pay anything – winner! And believe, there are options around.

For Aussie’s like me, the ING Everyday VISA Debit is the bomb: no international transaction fees and they refund overseas ATM fees if deposit at least $1000 a month and use you card five times. If you need a credit card (although I 100% do not advocate you to go into debt while travelling), both 28 Degrees and BankWest offer these kind of cards with no annual fees.

For my friends in the US, I’ve heard around the block that Charles Schwab offer a similar account option.

If you’re an infrequent traveller and don’t feel like opening new bank account, taking cash converted at your bank at home, or converting cash to foreign cash at a bank at your destination is probably your next best bet. But remember, steer clear of currency conversion kiosks.

But remember, no matter what you choose, keep in mind the method, conversion rate and fees – and you’ll keeping more pennies in your pocket!