A lot is different when you travel abroad. The food, the language, the fashion and the culture are all somewhat unfamiliar, as is – of course – the money. In order to buy anything in a foreign country you must have access to the native currency and this means currency exchange. However, exchange rates and the logistics of currency conversion can be both confusing and rather costly. Since foreign travel is difficult and expensive enough as it is, we at WalletHub decided to answer the most prevalent currency exchange questions in order to provide you with everything you need to know before your next trip abroad.
What is Currency Exchange?
Let’s start with the basics. Currency exchange – also referred to as currency conversion – is exactly what it sounds like: trading in your country’s currency for an equivalent amount of foreign coin, as dictated by global currency markets. Each major form of currency (e.g. the U.S. Dollar, Euro, British Pound and Swiss Frank) has an equivalent in every other currency, with the relationships between them being known as exchange rates.
How can I exchange currency?
A number of different organizations offer the ability to exchange currency. Banks, credit unions, credit card networks like Visa and MasterCard, and currency exchange operators – like those operating out of airports and train stations – all offer their own exchange rates and charge their own fees for currency conversion. Based on a WalletHub study, Visa and MasterCard provide the most competitive exchange rates available.
The actual process of currency conversion varies based on the organization you select. Banks often allow customers to exchange currency online, in which case money is removed from your bank account and the foreign currency is either delivered to you or can be picked up at a branch location. Otherwise, you will have to actually go into a bank or currency exchange store to complete the transaction. With international credit cards, currency exchange is done automatically when you make a purchase, and the charge will be detailed on your monthly statement.
What is the cheapest way to convert currency?
Credit cards automatically offer the best exchange rates, according to WalletHub’s Currency Exchange Study. And as long as you avoid the 2-3% foreign transaction fees that over 90% of credit cards have by getting a no international fee credit card, you’ll save about 8% and 14% as compared to the cash conversion services provided by local banks and airport currency exchange operators, respectively. Remember, in order to get the most out of your credit card while using it abroad, your card’s network must have widespread acceptance in the country in which you’re traveling. Therefore, your best bet is to get a card on the Visa or MasterCard network, which have the largest international presence, being accepted in over 200 countries and territories.
What are No International Fee Credit Cards?
90.2% of credit cards have fees (usually 3% of a transaction’s amount) associated with purchases made through foreign merchants. A credit card with no international fee also known as a credit card with no foreign transaction fee, will not only help you save on any trip out of the country but also on purchases made from foreign-based merchants while you’re in the U.S. Capital One was once the only major issuer of such credit cards, but the market has since grown with the addition of products from Citi, Chase and American Express.
Will my credit card work outside the U.S.?
For the most part, the credit card you use in the United States will also work abroad if it’s part of a worldwide credit network like Visa or MasterCard. While many countries around the world, particularly those in Europe, are switching from the magnetic stripe credit cards used in the U.S. to chip-and-pin credit cards, the rule thumb is that US magstripe cards still work more than 95% of the time in European locations. Pretty much the only places that are unlikely to accept your credit card for technological reasons are automated services like vending machines and train station kiosks. However, you may have to show a picture I.D. to alleviate fraud concerns.
Discover and American Express credit cards can be used in many countries other than the U.S., but their reach is far less significant than Visa and MasterCard. In addition, if you wish to escape the 2-3% fees for foreign usage that over 90% of all credit cards charge, you must have a no international fee credit card.
What are the most widely accepted international credit cards?
Credit cards on the Visa and MasterCard networks are the most widely accepted worldwide, able to be used in 200 and 210 countries and territories, respectively. American Express – accepted in 130 countries and territories – comes in third, while Discover cards can only be used in the U.S., Canada, Mexico, Central America and the Caribbean.
When should I convert my currency?
When you begin booking flights and hotel rooms through foreign companies, you are converting currency whether you know it or not and should therefore have a no foreign transaction fee credit card. When you convert cash really depends on when the exchange rates are lowest, so start tracking the relevant exchange rate during your trip’s planning stages and pull the trigger on conversion when the rates are the lowest.
How much currency should I convert?
The exact amount of cash you convert is really up to you, but a good ballpark figure is about $300. You want to have enough money to be able to pay for cabs and cash-only services upon arriving in your destination but not more than you would feel comfortable walking around with. A credit card should really be your primary means of spending money anyway, given the convenience and favorable exchange rates.
What causes currency exchange rates to fluctuate?
Exchange rates fluctuate whenever the value of either of the two currencies involved change. The value of a currency changes based on its demand, which is closely tied to a nation’s business activity, gross domestic product (GDP), and employment levels.
What is Dynamic Currency Conversion?
Dynamic currency conversion is a trick foreign merchants employ to profit off unsuspecting tourists. It involves the merchant offering to convert the total of a particular purchase from the local currency into U.S. Dollars, ostensibly for the convenience of the customer. However, this is a trap because the merchant will charge a marked-up exchange rate in order to pocket some extra money.