For best exchange rates, use credit cards or foreign-currency traveler's checks

January 16, 1994|By Jean Allen | Jean Allen,Fort Lauderdale Sun-SentinelTRAVEL Q&A

Q: I would appreciate your help in the matter of where is the best place to buy foreign currency, since I don't know where to get an honest and unbiased (and informed) answer.

I usually buy my British currency ahead of time at the bank. If the newspaper lists the cost of a British pound at $1.52, for example, my local bank will charge me about $1.64 to the pound and add on a $10 fee, which does not vary no matter how much or little I exchange.

If I exchange my money at the airport, the operator of the money-changing booth assures me that his rate is the same as the bank's rate. Is this true? Since I'm rushing at the airport, without the listing of the current bank rate, I'm unable to make a valid comparison. Is he saying it is equal to the $1.52 printed exchange rate, or the $1.64 the bank charges? His commission is usually a percentage of the amount exchanged, not a flat fee.

If I exchange my money overseas, I realize I am at a disadvantage if I exchange it at a hotel or in a store. But what if I exchange it at a bank? Am I getting the $1.52 rate or the $1.64 rate? They list the rates opposite to the way I'm familiar with, so that further complicates matters. And what kind of commission do they tack on?

I have also heard that you have a financial advantage if you take your money in traveler's checks and exchange them for cash overseas. But does that mean an advantage over changing cash, or over taking foreign currency in the first place? Is there no exchange differential or commission added on? If I have $20 traveler's checks and have to pay a set commission every time I cash one, how can that be an advantage financially?

You see I have very specific questions that are not answered by the generalized statements we usually read in travel books. I do travel a lot and I would appreciate a discussion of this matter.

A: I can give you some very specific examples:

For a trip to England last August, I purchased American Express traveler's checks in British pounds at the local American Automobile Association office. Since I am a member of AAA, I paid no fee or commission and got the exact, official, dollar-to-pound rate for that day, which happened to be $1.51. I could also have gotten the American Express checks for no fee from a bank where I have an account.

In England and Wales, I exchanged the pound-sterling checks for cash at American Express offices, paying no fee or vTC commission. This was the best of all deals. The only way I could lose would be if the pound's value dropped between the time I bought the traveler's checks and the time I cashed them.

This works for any nation provided you have American Express checks and always exchange them at an American Express office, and provided the AAA or your bank has a stock of the appropriate country's foreign-currency traveler's checks (call ahead and find out), and you buy them at a place where you have an account or are a member.

One day I got lazy and decided to cash one of my American Express checks at the bank in Harrod's Department Store in London. But the very nice teller told me there was a fee of several bucks (on a 50-pound check), and sent me across the street to an American Express office. I have heard from readers that some overseas banks will cash local-currency traveler's checks without a fee, but I've never found one.

One friend with me on the trip bought American Express U.S. dollar traveler's checks before we left home. She, too, was able to cash those with no fee or commission at American Express offices in England.

Another friend on the trip bought British pounds in cash at a bank at home and paid $1.59 per pound, including fees, in the same week I got my traveler's checks for $1.51. I got a better deal and didn't have to carry around a lot of cash.

All of our accommodations were prepaid, except for a hotel bill in London. We paid the bill with credit cards, and when my statement arrived, I found I had gotten a very favorable exchange rate of $1.52 per pound. When you use a credit card abroad, the exchange rate is applied on the day the statement is prepared, not the day you use the card. If the dollar gains strength in the intervening weeks, you win. If the dollar loses much strength, you lose a little. In my experience, this seldom happens, and I advise everyone to carry along a credit card.

Exchange booths at airports charge fees and commissions at least as high as banks, but banks charge less than shops and hotels. Exchanging U.S. cash costs a little more than exchanging traveler's checks.

As to how foreign banks express the dollar-pound differential: If we say that $1.52 buys one pound sterling, or that a pound is worth $1.52, they say that one U.S. dollar is worth 65.7 British pence (at 100 pence to the pound). If that's hard to figure out, just ask how much U.S. money it takes to buy a pound.

A reader in San Antonio, Texas, mentions another advantage to having foreign-currency traveler's checks: "Many times in Europe have presented a check to clerks and received a skeptical refusal until they notice it is in their own currency. It is then readily accepted with a big smile of appreciation that I bothered to get the checks in their own currency."

Then there are ATMs (Automatic Teller Machines) now found all over the world, that cough up local cash when you insert a credit card (Visa and MasterCard are most commonly accepted). The fee, billed to your account, is 1 percent ($2 minimum, $10 maximum).

American Express cardholders also can get cash from ATMs but fewer machines accept this card, and the funds are drawn directly from your checking account plus a 2 percent fee (minimum $2.50, maximum $10). I don't recommend using ATMs but always take along my PINs (personal identity numbers) in case of emergency.

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