Tips From The Nest: Getting the Best Exchange Rates
I often get asked what is the best way to take your precious $AUD overseas, and where you will get the best rates. I start by reiterating that I don’t have any financial advisory qualifications, and that my personal opinion does appear to fly in the face of conventional ‘advice’. But then if you ask anyone who knows me they will tell you that it often appears that I do things differently!
So let me give you a few background facts and thoughts, and my opinion on what to do. Remember it is my opinion, if you do have any suggestions or advice based on experience please comment below.
Remember those things called Travellers Cheques? A long time ago I remember reading an extraordinary fact about the mighty Thomas Cook global empire of travel agents. Thomas Cook made more money on Travellers cheques that were never cashed, than they did in all their other global enterprises combined! Wow! How can that be so? Well what many people did when arriving back home was to pop their travellers cheques away in a drawer for the next time they travelled. Often travellers did so because the rates to change back to $AUD rate was always so atrocious. Of course travellers cheques often disappeared, got put through the wash, got thrown out with old travel documents or would expire. Wow, what great business, selling people money they won’t ever use.
Other options available
So what avenues do we have now? There’s cash, travel money cards, credit and debit cards. So, what are the best rates you can get? The only two things to remember is, firstly, the more middle men there are in any transaction, the worse the rate will be. Secondly, if someone behind a counter is selling you money, they are often taking a profit.
Let’s start with cash. Carrying a lot of cash always attracts the possibility of it being lost or stolen. So we all know that we shouldn’t carry a lot of cash on us while travelling.
When you change your leftover foreign cash when you return home you will often not receive a good rate. If you carry extra $AUD overseas you will have to exchange it across a bank or exchange booth and you’ll likely get just as appalling rate as you do here in Australia.
My advice is to go to a local bank or travel money exchange shop before you depart and change around $200 into the local currency. That way when you arrive into a country you will have local funds at hand to cover you for the next day or so, perhaps for a taxi, lunch or snack. You will probably still receive an appalling exchange rate but you will have avoided the foreign street corner or airport exchange booths which will provide you with the lowest rate you will get.
While travelling I look to pay for as much as possible by credit card. Despite what so many pundits shout so loud, the simple and measurable fact is that the exchange rate delivered by the main credit companies such as Mastercard and Visa are better than any cash/money card rate you will ever get.
Credit card companies handle vast amounts of money internationally and set the exchange rates based on the official market exchange rate. Banks and money exchange kiosks set their own rates, and you will find the rates are sometimes well over 5% - 7% above the official rate.
However, not all credit cards are the same. Ensure you do your research as to the account and card usage fees you may be stung with. Whilst the rate used might be set by the credit card companies, there are often additional charges, transaction fees, ATM fees etc. Still, after all those extras are taken into account, you will usually be ahead than if you were using cash or a travel money card.
Credit cards work well as a long term, multi-function payment option.
Some helpful tips when using your credit card overseas:
• Don’t use your credit card to withdraw cash from an ATM as you will immediately be hit with a currency conversion fee and you will have to pay their exorbitant interest rates
• When paying a bill, pay in the local currency rather than in $AUD
• Some branded Mastercard and Visa cards boast no international transaction fees and no currency conversion fees, examples being 28 Degrees Platinum MasterCard or Citibank Plus credit card.
When travelling, I’ve noticed a number shops and restaurants in some European countries, as elsewhere in the world, now demand cash only. So how is it best to get cash?
My answer is simple. Use your Debit Card in any ATM. Sure you will usually get hit with those ATM fees as you do here at home, however they are often capped at a set rate of $AUD 5 or less. The key is to withdraw larger sums of cash, less often.
Travel Money Cards
I disagree with the often touted and recognised approach of getting cash via travel money cards as they can be quite costly. A lot of banks and similar institutions push you to buy travel money cards. I wonder why? The rate they offer is at, or close to, their cash across the counter rate which alone is very profitable for them.
Caveat emptor (buyer beware) - the financial institutions now offer a more useful service for you. They allow you to pre-load your card into about a dozen different currencies, on the one card and at the same time. That way, you can put even more money (at their exchange rates) in, making sure you have more than enough than you need. There is also a supporting sales pitch that if you leave one country, and you still have cash left over in the that currency, you can simply transfer the cash into the next currency. Really? At their rates? That means you will lose another 5% - 8% without having spent anything!
At least, if you use your good old faithful Debit Card you only change what you need, when you need, in the local currency needed, and at a better rate.
With all the negatives of using travel money cards, such as a worse exchange rate, charging you for the service and those nasty reverse exchange rates it’s no wonder that people come home and put the ‘soon to be lost’ cards in a drawer rather than bother to cash them in. Hmmmm… let me think… what does that remind me of? Oh yes, that’s it… travellers cheques! As I said at the beginning, if someone is being helpful across a counter, guiding you to deal with them and assisting you with handling your money, you will get a worse rate. It is as simple as that and cannot be avoided. So, my friends, keep it simple and use that plastic, credit card when paying via EFTPOS and that ‘hole in the wall’ when withdrawing cash.
Please feel free to contact us if you have any questions regarding exchanging currency of require any further advice.
What are you experiences with getting the best exchange rates?