At some point during your travels, you’ll be forced to pay for something with cash. Whether it’s for a tip on a bike tour or to pay a departure tax at a border crossing. Cash is still king and getting foreign currency can be tricky and expensive.
Here are some of the strategies I’ve used to get the best exchange rate possible.
Using an ATM to withdraw cash is usually the quickest and easiest way to get foreign currency. There are three main gotcha’s you need to watch out for:
- Foreign ATM fee charged by your home bank.
- Foreign card fee charged by the ATMs bank.
- Foreign Exchange rate charged by your home bank.
Lets use a recent example where I had to get $300BZD in Belize:
- My bank charged me $3.00CAD
- The Belizean bank charged me $8.00BZD ($5.55CAD)
- 3.34% markup on the exchange rate ($1BZD = $0.694318CAD) or $7.40CAD
My home bank will always charge me $3.00CAD regardless of which ATM I use, nothing much we can do here.
Different foreign banks will charge me different rates for using my ATM card. This particular bank was the cheapest I could find at $8BZD. Another bank wanted to charge me $20BZD. It pays to shop around
My home bank (PC Financial) charges a 3.34% markup on foreign exchange, one of the worst in the country. I could use a different bank or just deal with it.
This transaction cost me $15.95CAD to withdraw $300BZD, or 7.39%. The best strategy here is to make one large withdrawal to maximize on the fixed costs (#1 and #2 above or $8.55CAD). The more money I take out in one transaction, the cheaper it will be.
Cash Advance (Credit Card)
Another popular option is to get a cash advance on your credit card. As always, there are a few gotchas:
- Cash advance fee charged by your credit card
- Foreign card fee charged by the ATMs bank.
- Cash advance interest charged by your credit card.
- Foreign exchange rate/markup from your credit card.
Lets use an example of me getting $2,000MXN from my credit card:
- Visa charged me $5.00CAD for the cash advance (1.0% of the Cash Advance amount, minimum $5.00CAD)
- The Mexican bank charged me $25.52MXN ($1.61CAD)
- Interest for a month would be $2.13 (1.67% per month or 19.99% per year).
- I have a no-fee foreign exchange card, so my exchange rate is the same as the market rate.
The $5.00CAD minimum fee is a little steep, considering that it could have only cost me $1.27 at the 1% rate. In this case, it’s best to take out more than $500CAD equivalent.
Different foreign ATMs will charge different fees for using your card. This particular bank was the cheapest I could find in Mexico, so I went with it.
Cash advance interest is charged from the moment you take the money out, not at the end of the statement like purchases are. The order in which payments are applied differ between cards so make sure that cash advances are paid off first.
I will take a look at my credit card statement online and pay off the portion of the cash advance right away to minimize on the interest.
Using a Amazon.ca Visa means that I don’t have to pay any foreign exchange markup. This can save me over 3%.
This transaction cost me $6.61CAD – $8.74CAD (5.25% – 6.94%) depending on when I pay off the cash advance portion of my credit card. I could get more bang for my buck if I took out more than $500CAD worth of cash, to be charged the 1% fee instead of the $5.00CAD minimum.
If you already have a universal currency like US Dollars or Euros in your wallet, then using a black market or street money changer might work in your favour. I don’t like to carry around lots of cash in USD or EUR, so this doesn’t really apply to me here.
Make sure you have smaller notes though. A lot of places I went to would not accept the $100USD note. Don’t expect them to pay the market rate either, since they still need to make money.
Following these rules will get you the best rate:
- The least number of transactions, the better. Try to withdraw money once and make it as large a sum as possible. Avoid going back to the ATM multiple times.
- The fee that the foreign bank will charge you will be converted into your home currency at the same exchange rate of the amount being withdrawn. In my Belize example above I actually took out $308BZD not $300BZD, so the fee is also being marked up 3.34%.
- Try to find a card or bank that offers zero foreign exchange transaction fees. All banks in Canada charge a markup.
There is no way to avoid paying these fees, but with a little planning and research you can minimize them as much as possible. As always, I try to pay for everything on my credit card as its safe and gives me the best exchange rate.