When traveling overseas, it’s often helpful to have at least a bit of the local currency in your pocket. This, of course, begs the question…
What’s the cheapest and easiest way to get your hands on foreign currency without getting ripped off on the conversion from US dollars?
Today I want to share a few lessons that I’ve learned over the years. While it may not be possible to completely avoid costs associated with currency conversion, it’s not that hard to minimize them.
Know the going rate
For starters, you should know the going rate for currency conversions before you hit the road. While rates are dynamic, a quick Google search will give you the lay of the land. Try searching for something like this:
1 euro in usd
and the answer will appear above the regular Google search results.
Throughout the duration of my trip, the exchange rate was hovering right around $1.33/Euro. It may drift up or down a penny or two, but over relatively short time periods it’s (usually) fairly stable.
Avoid the airport kiosks
The next thing that you need to know is that the currency conversion kiosks in airports are, almost without exception, horrible ripoffs. Not only that, but they express their rates in odd terms so it’s hard to tell exactly what you’re getting.
Case in point: while passing through New York’s JFK airport, I checked the EUR-to-USD conversion rate at one of their currency conversion kiosks. Knowing that the rate was ca. $1.33 per Euro, I checked the board and was confused to see “395″ listed.
There were no units attached, and it took me a minute to figure out what was going on. As it turns out, they were listing the number of Euros per 600USD. Ahh, yes. I should have known. That makes perfect sense… 
When you do the math, you’ll see that they were charging about $1.52/Euro, which is nearly 15% higher than it should have been. If you wanted to get (say) 200€, it would have cost you a whopping $304 instead of the $266 that it should have cost.
On the other side of the pond, the conversion rates in the airport were similarly abysmal, so this phenomenon isn’t limited to the USA. And I found the same thing when traveling in South America a little over a year ago.
Finding a decent deal
So what should you do when you arrive in a foreign country and need local currency? Your best best is probably to hit an airport ATM. Yes, you might face some ATM fees, but you’ll get a much more favorable exchange rate.
In my case, I withdrew 200€ at a cost of $270.84, which works out to $1.35 per Euro. A little high, but far better than the going rate at the conversion kiosks.
Sure, I paid some fees — $5 to the bank that owned the ATM and $2.71 to Bank of America for going outside their network. But even after factoring these in, I was well ahead of the game at roughly $1.39 per Euro.
Protip: Some large banks are members of international alliances that let you visit the ATMs of their partners without paying fees. Check before you leave and you might be able to save yourself the ATM fees.
Since the ATM fees are typically fixed dollar amounts, their impact decreases the more you withdraw. That being said, don’t overdo it as you’ll typically lose a bit of ground on both sides of the transaction — i.e., there’s typically a cost associated with converting to the foreign currency as well as converting back.
Minimizing cash usage
Another good strategy is to minimize the amount of cash that you use. Instead, you can get a competitive exchange rate by simply swiping a credit card when making your purchases instead of converting USD to the local currency and paying with cash.
This is especially beneficial if you have a card that charges no foreign transaction fees (see below). But even if you have to pay a few percent extra, you’ll still come out way ahead of converting your cash at an airport kiosk.
As for issuers… Just like here in the USA, Visa and MasterCard are accepted just about anywhere overseas that you can use a credit card. In contrast, American Express and Discover seem even more limited abroad than they are here.
And no, you probably don’t need a chip-and-PIN credit card to ensure acceptance. As I noted yesterday, plain old magnetic stripe cards were (in my experience) accepted just about everywhere — at least in Europe.
Protip: When swiping your card, you may be given a choice between processing the transaction in the local currency or USD. Based on the rates that I’ve seen, you’re probably better off using the local currency and having your issuer do the conversion vs. letting the card processor handle it.
Avoiding foreign transaction fees
Finally, depending on how much you travel, you should seriously consider getting a credit card with no foreign transaction fees. As I’ve noted in the past, many card issuers charge upwards of 3% for foreign transactions.
While this 3% fee is preferable to converting at a much worse rate at the airport, it’s easy enough to avoid the extra fees entirely, so… Why not?
There are a variety of cards out there with no foreign transaction fees. The one that I currently carry is the Barclaycard Arrival World MasterCard, which combines 0% fees on foreign transactions with a $444 signup bonus and 2.2% cash back.
If you have any other tips for avoiding (or minimizing) the costs associated with currency conversion, please share them in the comments.
Related posts:
Chip and PIN Credit Cards for Traveling in Europe
Are Chip-and-Pin Credit Cards Really Necessary?
Rental Car Insurance: Pay With Credit and You're (Probably) Covered
Discover it Card: 0% Balance Transfers and Cash Back Rewards
Maximizing Your Credit Card Rewards
Applying for a Handful of New Credit Cards
Credit Card Application Update
$444 Signup Bonus + 2x Rewards (Barclaycard Arrival World MasterCard)