How To Buy Foreign Currency on Vacation Overseas

Since people are travelling overseas at increasing volumes, there is also an increasing number of ways to buy and sell foreign currency.

When purchasing foreign currency two opposing factors need to be thoroughly considered:

Convenience and cost. 

In some cases, the most convenient way to buy foreign currency is also the most expensive.  For example, a common way of exchanging foreign currency is at an airport kiosk.  This, however, is also one of the most expensive ways.

What are the expenses involved in buying foreign currency?

Any time currencies are exchanged, the exchanging organization charges a certain fee.  This fee is above what is typically considered the wholesale exchange rate.  Let’s assume that the wholesale rate is .85.  This means it will take .85 cents to buy one dollar in the foreign currency.  Now, if you use your credit card they will likely charge you about a 3% fee.  Therefore, you will pay .88 cents (.85+.03) to buy one dollar in the foreign currency. 

Additionally, different organizations accept different wholesale exchange rates.  Thus, company A might say that wholesale rate is .83 and the other will say it is .85.

Your goal when exchanging foreign currency is to find the method of exchange that has the lowest wholesale rate and the lowest additional fees.

What are the different methods for buying foreign currency?

  1. Bank
  2. Airport Exchange Rate Counter
  3. ATM
  4. Traveler’s Check
  5. Credit Cards
  6. Organizations that help you buy and sell currency – like Xe.com.

Credit Cards are the most popular method of buying foreign currency.

Credit cards are popular because of convenience.  Overall, credit cards offer a reasonable rate, but can be quite expensive.  It all depends on the terms and conditions of your credit card.  For example, while it is common to charge a 3% foreign exchange fee, there are some organizations that do not charge anything for a foreign exchange fee.  The two most common are the Schwab Credit Card and Capitol One.  However, it is rumored that Schwab will be making changes to their credit card.

There are two disadvantageous of using a credit card.  The first is that people tend to overspend with a credit card.  If you are traveling for a vacation this is especially true.  If your intention is to plan a fun, affordable family vacation, you might not want to track your spending with a credit card.  The second disadvantage of the credit card is that it is not accepted everywhere.  This is especially true of American Express cards as they tend to be accepted in fewer locations overseas.

Using the AMT or Debit Cards to Get Foreign Currency

If the two disadvantages of credit cards apply, you might consider using your bank ATM card.  The cost associated with the card is completely dependent on your bank.  You must get the proper information before heading overseas.  Find out the following:

What is the ATM use surcharge if you use the card overseas?  You need to know how much they charge you per withdrawal.

What is the foreign exchange fee if you use the card overseas?  You need to know what extra percentages they will charge you above the wholesale exchange rate. 

To get more details about all your options learn how to exchange foreign currency.

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