One common question I get about money is, should I exchange money or withdraw from an ATM? Well, the answer is not that simple, and it varies depending on your bank, current exchange rate, and currencies you’re exchanging.
Before you start your trip, you should check the current exchange rate for the currency you wish to exchange at a site like xe.com. With their converter, you will know the current rates for all currency pairs in the world and have an idea of how much you should expect when you exchange money abroad. Please be aware that these rates change everyday.
What is a currency pair? When you see EUR/USD on a FOREX screen, that’s a pair. It tells you how many Dollars are needed to buy a Euro, for example. At the moment, it stands around $1.12 per Euro.
Additionally, you should know that currency pairs are classified as Major, Minor, and Exotic. Major pairs are the ones that include the US Dollar, Minor pairs don’t include the US Dollar but include the other three major currencies (British Pounds, Euros and Yen), and Exotic are the other pairs that don’t include any of the above (like Thai Baht to South African Rand).
Major pairs, since they are the most traded, require a lower commission or spread for the exchange. Minor pairs are not traded as much as the Major pairs, so they charge a bigger spread; and the Exotic, being the rarest, charge an even higher spread.
So, when should you withdraw from your ATM and when should you exchange at a kiosk to get the best rates?
Withdraw from an ATM:
- When you have a travel-friendly debit card that doesn’t charge any International Withdrawal Fees.
- When your bank is part of the Global ATM Alliance. This alliance of banks allows users of its member banks to withdraw money without any fee at any of their network ATMs.
- When the currency pair is Exotic. Let’s say that you’re from Brazil and are exchanging Reais to South African Rands. If you exchange in a booth, you’ll be charged a high exchange commission, and most probably you’ll need to exchange the Reais to Dollars and the Dollars to Rands, so it is double commission! In this case, withdrawing from an ATM is better, since it will give you the closest inter-bank exchange rate. Your bank will charge you an International Withdrawal Fee, and maybe the foreign bank too, but if you withdraw a significant amount of money, it is still worth it.
- Usually, it is better to withdraw when you want to get a big amount of cash (more than $200 or $300+). Try to withdraw most of the money you know you will use on your trip in fewer withdrawals. That way, you will reduce the number of times you’ll use the ATM, thus reducing the fees.
- In general, ATMs are the best choice for day-to-day use.
Exchange at a currency exchange kiosk:
- When you don’t have a travel-friendly debit card. Many American banks charge $5 or more for using an ATM outside their network plus 1% of the amount withdrawn for the currency conversion. This is in addition to the possible fee charged by the foreign bank, which ranges from $2 to $5 per withdrawal. This means that every time you withdraw, you lose around $10+.
- With the xe.com app, calculate the real amount of money you should get and compare to the amount of money you’ll get if you exchange at a kiosk (by asking the clerk how many [currency] you get with $X). If the difference between the real exchange amount and the one offered at the kiosk is less than $10 or so (what you lose at the ATM with non-travel-friendly debit cards), it is better to exchange at the kiosk. If it is more, then better withdraw at the ATM.
- When there’s no commissions at the kiosk, and you’re exchanging small amounts of a Major or Minor pair.
- When you visit a country where your debit card is not functional or where ATMs don’t accept your cards. This is not common, but it happens.
- Additionally, if you have a travel-friendly credit card, you could use it to make purchases abroad and avoid having to withdraw or exchange too much money. Travel-friendly credit cards often come with no foreign transaction fees, so your purchases should be charged at the real exchange rate. Should it have the fee, it is usually a 3% fee, which in most cases is better than the fee percentage of exchange kiosks. Credit cards are good for big purchases (even with the fee in most cases).
Things you should never do:
- Never withdraw money from a credit card as this is considered a cash advance and incurs high fees.
- Exchange foreign currency in your home country (especially if you’re from one of the countries in the Major or Minor pairs). This comes at a higher rate than if you exchange the same pair at the foreign destination.
- Never exchange money on the black market. They offer higher rates, but they often give false bills. Argentina and Venezuela are two exceptions to this rule given their current inflation and economic problems.
- Never make withdrawals or credit card purchases with a currency other than your current destination. Some ATMs or sellers offer to charge the purchase in your home currency, which sounds nice, but in reality their exchange rate is worse than charging at the local currency and letting your bank do the exchange.
Now that you know the basics of exchange rates, you’ll be amazed at how much money you’ll be able to save by making smart choices when getting foreign currency.
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