If you are looking to make a large currency exchange transaction for the first time, you’ve probably just decided to make a major international commitment such as buying a house, a boat, attending school internationally, or going on a lengthy vacation. You want to make sure that you get the best exchange rate possible when exchanging your money to maximize your savings.
When evaluating your currency exchange options, there will be many alternatives that you can look to use. Regardless of the amount you’re looking to exchange, there will be a number of firms and venues that you can evaluate when assessing where you’d like to conduct your exchange transaction. Here are a few places you might be considering to exchange your funds at:
Banks
The first place you might have thought to buy U.S. dollars was probably your bank. Your bank is located close to you, and you have already developed a relationship with them, so this is a natural first thought. The banks are a very convenient option for currency exchange, but they all charge a substantial mark-up to use their exchange services. This is to cover back office costs, such as paying the wages of the teller who helped facilitate your transaction, and the back office workers that process your transaction.
Malls
Many large malls offer currency exchange services. The main reason for this is because malls tend to be popular tourist destinations for international travellers. Remember that currency exchange providers in malls will have high overhead costs, as mall rent can be very expensive. These costs are passed on to the end consumer through higher rates.
Airports
If you’re going on vacation, you probably considered using the exchange rate providers at the airport. Airport-based currency exchange providers have high overhead costs, similar to malls, because airport rent is also expensive.
Online Currency Exchange Providers
In doing some research online on how to get the best exchange rate for large currency exchange transactions, you’ve probably come across some online currency exchange providers. Online currency exchange providers do electronic currency transactions, so you needn’t visit their physical location. They have the lowest overhead costs and resultantly offer the best exchange rates, however they do often have minimum amounts to use their services. If you are planning a small cross-border shopping trip and need to exchange a few hundred dollars, they likely aren’t an option you would consider.
Comparing exchange rates can often prove tricky. Exchange rates fluctuate in real time, and currency markets never close. By the time you hang up the phone after inquiring about an exchange rate, your rate has probably already expired.
The most accurate way to compare exchange rates is to evaluate the differences in the mark-ups that each currency provider charges. The mark-up on an exchange rate is simply the difference between the exchange rate you are quoted, and the mid-market exchange rate. The lower the mark-up, the more favourable the exchange rate is for you. Therefore, you are looking for the provider that offers the lowest mark-up on their exchange rate services.
The main trade-off you will have to evaluate when comparing exchange rate providers is convenience vs. getting a better rate. If you are exchanging smaller amounts of money, saving 1-2% on your exchange rate is probably not the highest priority. On a couple hundred dollars, this will save you a small amount of money. For smaller transactions, you should focus on finding the most convenient option, as you can’t go wrong. Your bank is likely the most convenient place to conduct small currency exchanges for the first time.
If you are looking to make a large purchase of U.S. dollars for the first time, then your decision-making criteria should consist largely of getting the best exchange rate. Savings of 1-2% on $10,000 amounts to $100-200, and on $100,000, savings of $1,000-2,000. These are not trivial figures. You should highly consider the use of online currency exchange providers, such as Knightsbridge Foreign Exchange, They can save you a substantial amount of money.
When buying U.S. dollars for the first time, ensure you consider your transaction size when making a decision. For smaller transactions, use the most convenient provider, usually your bank. For larger transactions (several thousand dollars), then you should begin to shop around. It will be cheaper for you to buy your U.S. dollars through an online currency exchange provider than it would be to use your bank.
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