How to Avoid Foreign Exchange Fees
Traveling abroad is exciting but expensive, mainly due to foreign exchange fees. Travelers pay these fees at currency exchange kiosks, foreign ATMs, and each time they use credit cards. Unfortunately, the exchange fees can sometimes be costly.
Luckily, there are ways to avoid foreign exchange fees. When preparing for your trip, ensure you exchange currency in your country. Also, use credit cards with no foreign exchange fees and avoid exchanging money at the airport currency exchange kiosks.
Although you might not entirely evade foreign exchange fees with these methods, it helps to reduce the costs. For example, credit cards charge a 3 percent exchange fee on every transaction, which might seem small but accumulates with time.
What Is Foreign Exchange Fee?
A foreign exchange fee is a fee credit card issuers charge their customers every time they pay using the card. You also pay foreign exchange fees when buying in another country's currency. For example, you will pay a fee when exchanging US dollars with Canadian dollars.
Credit cards have different rates of foreign exchange fees, but most rates fall between 1 and 3 percent. For example, Visa and MasterCard charge 1 percent on every transaction, while American Express charges a fee of 2.7 percent.
Banks also charge a foreign exchange fee, although their price matches the market's exchange rates.
A foreign exchange fee is charged on any transaction done in a foreign country. This includes buying flight tickets from an international airline in US dollars, shopping online, and paying to a foreign bank. You will also suffer exchange fees when withdrawing money from a foreign ATM.
If you are planning a big trip on a budget, there are ways to avoid foreign exchange fees. Some of these methods will help you avoid the expenses, while others will reduce the amount of foreign exchange you pay.
Apply For a No Foreign Transaction Fees Credit Card
Credit cards are easier to carry because they are safer than cash. It is also easier to trace or block a lost credit card to prevent usage by fraudsters and scammers. Credit cards also earn redeemable points calculated after every transaction.
However, always check the terms of the credit card you are applying for—some charge hidden foreign transaction fees which are hard to know until you see your bill. The information about exchange fees is mainly on the credit card terms and policy, which most people don't read through thoroughly.
Some credit cards don't charge foreign exchange fees, so consider getting those. These are beneficial at home and abroad because you can shop for items without extra costs.
You can also consider applying for a travel rewards card if you travel a lot. It will come in handy on your next trip because you could get reduced prices for air tickets, hotel rooms, and grocery purchases.
Avoid Exchanging Currency at the Kiosks near Airports
The currency exchange kiosks at the airports are convenient but will cost you more. In addition, these kiosks charge a high exchange fee to foreigners because of the high demand.
Airport currency exchange kiosks are also expensive because they are mostly the only option tourists have when they land in the country. Other places with expensive exchange rates are tourist attraction sites and ATMs in malls.
Exchange Cash before Leaving Your Country
You will need cash immediately after arriving in Canada because you must pay for transport and hotel rooms. To avoid the high exchange rates at the kiosks near the airport, change your currency to CAD before leaving your country.
You will pay a smaller fee than you would pay at the kiosk. However, remember that carrying cash is not entirely safe. You can quickly lose it to thieves, and the money is hard to find.
You can bring a limited amount of cash to Canada, so ensure you don't carry more. For example, if you have over 10000 CAD, you must declare it before crossing the border.
Places with the lowest foreign exchange rates are banks, credit unions, or currency exchange stores. You can also exchange the currency in a bank once you get to Canada. Always ensure you choose exchange places away from the airport.
If you did not exchange your currency before leaving the country, you could identify the ATM in your country of destination. However, confirm if they charge a foreign exchange fee before going in.
Ensure you check if your bank has an ATM in Canada. This way, you will pay nominal exchange fees. When exchanging the cash, ensure you get enough to use during the trip because ATM fees can accumulate with many withdrawals.
Before your trip, confirm with your bank to see your ATM withdrawal limits. If it is too low, you can ask for a raise to enable you to get enough cash for your trip. Also, check if the bank offers discounted international ATM withdrawals to minimize the ATM fees.
Use Local Currency to Avoid Conversion Fees
Some merchants will ask you to choose the currency you want to pay when you buy items. You can choose between using the local currency or paying with US dollars. Always choose to pay with local cash.
Paying for items using foreign currency charges you a foreign conversion fee. There are also currency exchange fees, which can make the bill too high. However, this could cost you a dynamic currency conversion fee, which most merchants don't disclose.
Open a Bank Account with an Institution That Does Not Charge a Foreign Transaction Fee
The small fees charged every time you use your credit or debit card in a foreign country can accumulate massive amounts. If you cannot exchange your currency or don't want to carry cash when traveling, you can open a bank account with an institution that doesn't charge transaction fees.
Before opening the account, ensure you read all the policies to find if there are any hidden charges. You can also ask questions and ask them to disclose all the information you should know as a customer.
Exchange Currency in Bigger Towns
Bigger towns have many banks, and you could find an international bank or your bank's branch. Exchanging currencies in your bank's branch in a foreign country is cheaper than exchanging at airport kiosks.
Another advantage you get with exchanging currency in big towns is competitive prices. There are many money exchange places, so they all strive for the best prices.
Pros and Cons of Using Credit Cards
While using no-foreign-transaction-fees credit cards can help you avoid exchange rates, the payment method has pros and cons. As a result, you can enjoy quick access to funds for emergencies, enabling you to build your credit history.
However, you must establish your credit worthiness before applying for a credit card. Credit card issuers check your transactions and credit scores with global information and insights from companies like TransUnion. Besides, credit cards also accrue interest rates due to late payments.
Additional foreign exchange fees can increase your bills when traveling. You can avoid these fees by exchanging your currency before your travel dates and using credit cards that don't charge transaction fees. You can also get the best exchange rates at Knightsbridge Foreign Exchange, helping you save more money.