Travelling is usually both an exhilarating and enriching experience. Of course, it does come with its own set of challenges and financial headaches. Further, the more frequently we travel, the more frequently that these sometimes very expensive headaches blight us.
One of the omnipresent financial challenges of travelling is dealing with currency exchanges in the best way. Whether you’re heading abroad for business or for leisure, you are going to need access to foreign currency and as such are going to have to absorb some foreign currency exchange costs along the way.
Understanding how to best minimise these costs can make a big difference to your travel budget. The costs of exchanging money, particularly at banks or airports, can be surprisingly high, and finding more cost-effective alternatives is essential for the savvy frequent traveller.
Let’s take a closer look.
What You Will Find Here
Foreign Currency Costs: ATM’s and Airports
Wherever in the world you go (with very few exceptions such as sanctioned countries like Iran…) your bank card will work. As such, many rookie travellers make the mistake of simply entering their card into a foreign ATM and withdrawing a chunk of cash as and when they need it. However, whenever you withdraw cash from a foreign ATM using your bank card, several costs can come into play making the transaction far more expensive than you might expect. Let’s now break these down quickly and examine how travel banking works.
Firstly, when you use a foreign ATM your bank will typically charge you a foreign transaction fee. This can either be a fixed amount, or a percentage of between 1% to 3% of the transaction’s value. Then, you may also be hit with a currency conversion fee, which is the cost of converting your home currency into the local currency at the ATM. The exchange rate used for this conversion is always less favourable than the market rate, as banks typically add a ‘markup’ to the rate in order to make themselves a little profit.
In addition to the fees imposed by your own bank, the foreign ATM operator may well also charge a fee for the withdrawal. This is often a fixed amount, which tends to vary depending on the country and the ATM network. All in all, these fees can quickly add up, and this is especially true if you make numerous withdrawals or withdraw large sums of money in one go.
Another common mistake rookie travellers make is exchanging foreign currency at an airport’s foreign exchange desk. While using airport exchange desks to convert your money can be convenient (especially if you need local currency immediately upon arrival) it’s seldom ever the most cost-effective option. In fact, airport exchange desks are well known for offering poor exchange rates that are significantly marked up compared to the rates you might find at banks or local exchange offices.
Cost Effective Alternatives
Let’s now look at some alternatives.
One alternative to using the airport’s currency exchange desk is using local currency exchange offices at your destination. For example, instead of using the desk at Manchester airport, travellers could head into the city and use one of Manchester’s 30 currency exchanges. These local outlets usually provide much more competitive rates than airport desks, mainly because they rely on a high volume of transactions and have lower overhead costs.
However, not all currency exchange offices are created equal. Rates can vary significantly between different providers, so it’s always worth spending some time shopping around. Using online comparison tools or apps that track exchange rates in real-time, can also help you to identify the best deals.
When it comes to getting cash from an ATM, there is the option of getting a specialist travel card provided by companies such as Visa, MasterCard, and American Express. These travel cards are often marketed as convenient, cost effective tools for travellers, offering features like no foreign transaction fees, rewards points on purchases, and fraud protection and there is some truth in this.
However, while these cards can be a good option for some travellers, it’s vitally important to read the fine print. Some travel cards may still charge fees for currency conversion, and the exchange rates offered by these cards may still include a small markup over the market rate. In some cases, travel card issuers charge annual fees which can undermine any savings.
Multi Currency Cards
Multi-currency cards are specialised payment cards that allow account holders to hold, spend, and manage multiple currencies within a single main account. These cards (often issued by fintech companies like Wise, Revolut, and Currensea) are designed to make international travel that little bit more seamless and cost-effective.
For travellers, these currency cards offer a number of advantages. The primary one, is that holding an existing balance a foreign currency circumvents the prospect of being hit with an unfavourable exchange rate at an ATM. These cards are also widely accepted, so users don’t have to worry too much about finding an ATM that accepts their card.
If you are a frequent traveller (travelling on a medium budget) you are likely to be exchanging several thousand pounds over the course of a year of travel. If the most common method you use is your standard bank-issued card or High Street currency exchange shops, you are probably paying 3% on average on each transaction. Added up, 3% of £5,000 is £150 whereas by using Wise’s multi-currency card you could slash that to around just 30 pounds.
Final Thoughts
As you can see, for the frequent travellers out there, minimising currency exchange costs can significantly free up more of that previous travel budget for the things that matter most.
Therefore, understanding the nuances of using foreign ATMs and airport exchange desks is crucial as is exploring cost-effective alternatives such as local currency exchanges, specialist travel cards and multi-currency cards. By carefully choosing currency exchange methods and being mindful of the associated fees, savvy travellers can save hundreds of dollars annually.
Please note this post is a collaboration.
