The Complete Guide to Exchanging Foreign Currency

If you’ve ever exchanged foreign currency while traveling in another country, you likely know how expensive it can be. Often, the most convenient places to change your money (such as the airport or hotel) can be the most costly.

Though you often have to pay fees to access foreign currency, it’s worthwhile to learn how to exchange your money for as little extra cost as possible. Here’s a look at some of the best — and worst — places to exchange foreign currency, plus tips for how to get the best conversion rates and save on fees.

The Benefits of Exchanging Foreign Currency

Though many places will accept credit cards overseas, it can still be useful to convert your dollars to foreign currency. Here’s why:

•   There may be places that only accept cash, such as when you buy food at markets, haggle for souvenirs, or shop at stores that don’t accept plastic for payment.

•   Having some cash is a great backup form of payment in case you run across issues with your credit card.

•   Cash can be a helpful way to create a budget while traveling. Say, if you give yourself $75 a day for food, having that cash in your pocket can help you avoid going overboard vs. swiping too much with a credit card. That can help you keep your budget in balance.

•   Exchanging foreign currency also gives you the potential advantage of avoiding currency conversion fees and staying within your vacation budget. For instance, some international retailers give you the opportunity to pay in local or your own country’s currency. If you choose the latter, you may get a poor exchange rate.

Paying in local currency may help you save money. For instance, some international retailers give you the opportunity to pay in local or your own country’s currency. If you choose the latter, you may get a poor exchange rate.

By exchanging foreign currency ahead of time, you may be able to avoid paying more than necessary and take advantage of more favorable exchange rates.

Finding Places to Exchange Currency

Here’s a look at some of the best places to exchange foreign currency.

Banks and Credit Unions

Most major commercial banks will have foreign currency available for you to exchange. And depending on the currency you’re looking for, your bank may only charge you the exchange rate and no additional fees. In this case, you may nab the most cost-effective method to exchange currency.

Your financial institution may offer several ways to request foreign currency — online, over the phone, or at your local branch. Not all banks (or credit unions) keep every possible currency on hand, however, so you may need to do some advance planning. It could take several business days to complete a currency exchange.

Your bank can also be a good place to convert any leftover foreign currency back to U.S. dollars when you get home.

Online Currency Conversion

Another way to change your money before you leave town is to use an online currency exchange service. Services like Currency Exchange International and OFX allow you to buy currency online before you travel using your credit or debit card and will deliver the currency to your home or, in some cases, another location.

Some online currency services may have better rates than airport kiosks, and even banks, but that’s not always the case. Be sure to shop around and understand all the fees involved to make sure you’re getting a good deal.

Recommended: How to Deposit Foreign Currency in Your Bank Account

Overseas ATMs

If you don’t exchange any (or enough) cash before you go, another option is to withdraw cash at an ATM after you arrive. This can be especially cost-effective if your bank offers fee-free ATMs in international locations. If that’s the case, you may be able to withdraw cash in the local currency with competitive exchange rates and low fees. If you don’t have access to any in-network ATMs, however, you’ll want to find out what the out-of-network ATM fees will be to see if it’s worth converting currency this way.

Worst Ways to Exchange Foreign Currency

Now that you know where to exchange currency, let’s take a closer look at some places you may want to avoid. The following exchange locations can make converting currencies more expensive than necessary.

Airport Kiosks

Exchanging your cash at the airport usually results in some of the highest fees and least favorable exchange rates out of all your options. However, they can be a convenient fall-back, especially if you weren’t able to exchange any currency ahead of time.

Local Currency Conversion Kiosks

You may find currency exchange kiosks and bureaus at highly-trafficked tourist attractions, shopping areas, or even your hotel. Like airport kiosks, they’re a convenient place to exchange currency, but you could be paying high fees and facing lower-than-average exchange rates.

Alternatives to Exchanging Foreign Currency

Instead of exchanging cash and using it while traveling, you might use your credit or debit card to cover your travel expenses.

Using Your Credit Card On Trips

Paying for meals, purchases, and other travel expenses with your credit card can be a good deal, since many card issuers offer favorable exchange rates. What’s more, your card issuer may offer protection on your purchases, as well as cash back or reward points for every dollar you spend.

Before you go this route, however, you’ll want to check to make sure your card doesn’t charge foreign transaction fees. Cards that charge these fees typically add an extra 3% for every foreign purchase. If your card does instil these fees, it may be worth applying for one that doesn’t before you leave town.

Something else to keep in mind: When using a credit card overseas, it’s generally better to pay in local currency than in U.S. dollars (USD). This way, your bank will manage the currency conversion and likely give you a better rate than you would get from a local merchant or restaurant.

Before going on your trip, be sure to notify your credit card issuer of your plans. That way, they don’t accidentally deny your transaction believing it’s fraudulent.

Using Your Debit Card in a Foreign Country

Debit cards are typically backed by Mastercard or Visa, brands which are known around the world. You may find that you are able to use your debit card for transactions when traveling, especially where those brands are welcomed. Just keep in mind that, similar to the fees charged by some credit cards, your bank could charge a foreign transaction or foreign exchange fee on every debit card purchase you make overseas. It’s a good idea to ask your bank about their policies before you leave town.

The Takeaway

Exchanging foreign currency before you go on your trip is most likely your best option, as it tends to offer the lowest fees and best exchange rates. Using your credit card or debit card can also be great, especially if your bank or card issuer doesn’t charge foreign transaction fees.

Working with your bank is generally the best way to ensure you’re financially sound when you go on your trip. And having the right banking partner will also keep you in good shape every day when you’re home.

FAQ

Do banks exchange foreign currency?

Yes, most banks will exchange foreign currency. However, the types of foreign currency available will differ from one bank to another. Your financial institution may need a few days to get the currency you need.

Is it better to go to a bank or currency exchange?

In general, it’s better to exchange currency at a bank than a dedicated currency exchange. Banks tend to offer better exchange rates and charge lower fees, particularly if you’re already a customer. Currency exchange kiosks located in airports or tourist areas tend to charge higher fees and offer less favorable exchange rates compared to banks.

Where can I change currency for free?

One place where you may be able to exchange currency for free is at your bank. Some banks don’t charge exchange fees to existing customers. In some cases, your bank may charge a small fee if you exchange less than a certain minimum amount.

Photo credit: iStock/Anurak Tepkhamtai

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