Exchange-rate tips: Get more mileage out of the dollar

Foreign currency is usually cheaper over there


August 08, 2004|By Carol Pucci | Carol Pucci,Seattle Times

A dollar doesn't buy what it used to in most foreign countries anymore, so why make things worse by cheating yourself out of the best possible exchange rate?

I was reminded of this while standing in line at an American Express office recently to buy traveler's checks.

After waiting for 15 minutes (my limit for waiting to buy anything), I left without the traveler's checks. Ahead of me was a woman buying euros (cash notes, not traveler's checks) to take with her on vacation.

The clerk quoted her an exchange rate of $1.34 per euro, 10 cents on the dollar higher than that day's official rate of $1.24. The 8 percent surcharge, plus a $5 fee -- $25 total on 200 euros -- was the price she paid for the convenience of buying her euros here.

Had she waited until she arrived at her destination and used a local cash machine, she could have saved enough to treat herself and several friends to a wake-up cappuccino or pay for a taxi to her hotel.

What the woman bought instead was peace of mind. She felt better about arriving in a foreign country with local currency in her wallet. That's understandable, but the reality is that there's little reason to worry about it anymore.

Assuming you've laid the groundwork with your bank back home, getting foreign currency in most countries is as easy as getting off the plane, finding the nearest automatic teller machine and withdrawing money from your checking account.

There are conversion fees -- usually 1 to 3 percent over the "interbank" or wholesale foreign exchange rates offered to large banks and corporations (the rate published in the newspaper each day), and sometimes withdrawal fees of $1.50 to $3. But these add up to less than the cost of buying foreign currency in the United States or at airport exchange windows.

Worst case, even if the woman at the Amex counter had to pay a 3 percent surcharge and $3 withdrawal fee, her 200 euros would cost her $11 above the interbank rate instead of $25, and if she was smart about the ATM card she used, probably less.

The best deals

As a general rule, an ATM cash card issued by a credit union or a bank (as opposed to Visa and MasterCard debit cards) gets you the best deal on foreign currency withdrawals. These cards carry the lowest surcharges.

If you use a Visa or MasterCard debit card, you'll automatically pay the 1 percent conversion fee that Visa and MasterCard International levy on overseas purchases and cash withdrawals. Many banks add an additional 1 to 3 percent.

Using a credit card rather than paying cash for purchases is the other way to get the best exchange rates. Be aware, however, that Visa and MasterCard tack on a 1 percent conversion fee for credit-card purchases, and many banks add another 1 to 3 percent.

A May survey of 45 banks by Consumer Action, a San Francisco consumer-advocacy organization, showed 26 banks adding conversion charges on credit-card purchases on top of the Visa and MasterCard fees.

Bank of America, U.S. Bank and Wells Fargo tack on 2 percent for a total of 3 percent. Among big banks that don't add extra fees are Capital One Bank of McLean, Va., and Delaware-based MBNA America Bank, which issues Visa cards to American Automobile Association members.

Most credit unions and small community banks don't add surcharges. American Express, which is not a member of the Visa or MasterCard system, adds a 2 percent conversion fee. A March ruling in a California lawsuit changed the way some banks disclose these surcharges. Most were "embedding" their fees in the overall charge reflected on billing statements in U.S. dollars. You couldn't tell what part of the charge was the price you paid for a dinner or hotel room and what part was the bank's surcharge; more now break out the fees on statements.

What to do here

Before you leave:

Call your bank and find out its fees on foreign cash-machine withdrawals and credit-card purchases. To avoid suspicion of fraud and risk having your card canceled, ask the bank to note on your record that you will be traveling. Be sure you have the phone number to call (usually collect) if you have a problem.

Make sure you have a PIN number that will work in other countries (numbers instead of letters). Never write down your number or give it to someone else.

Minimize ATM withdrawal fees by making a few large withdrawals instead of many smaller ones. If your limit is low, ask your bank to raise it, but keep in mind that some foreign banks impose limits of their own. If a machine rejects your card or says that the transaction can't be completed, don't assume your card won't work. Try again and request a smaller amount, or try another machine.

Take two ATM cards (and two credit cards) if possible, and keep them secure inside your clothing or money belt. Most overseas ATMs are linked to both the Cirrus (MasterCard) and Plus (Visa) networks, but some use only one.

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