Or what You need to Know about currency conversion (and your bank might not tell you)
Your clothes are almost packed into your new suitcase, you’ve read the travel books, paid for the holiday but have you forgotten something? Have you really given thought to how to access your money when on holiday? This could make or break your well earned travel plans.
Traveller’s cheques were the way to go in the past, but waiting in line at the bank is not fun at home and definitely not fun in a foreign country. There are much better ways.
I really dislike paying exorbitant fees to banks for the privilege of using my own money overseas, and that is why I think I might have come up with a couple of options that could cut down these charges, but first:
The Starting Point – Dreaded Foreign Exchange Rate
The first thing you need to know is that the bank or organisation you decide to deal with to exchange your money for foreign currency will build a margin into the exchange rate they offer you relative to the official exchange rate.
The official exchange rate: As of today, using the official exchange rate, you will receive is 0 .72 euro cents for every $1.00. But the organisation you deal with will definitely not give you the official exchange rate. For example the ANZ will give you .69 euro cents for $1.00 and other banks will vary around this figure – the bank then keeps the 3 cent margin. This is an unavoidable cost for all foreign exchange transactions but we are mentioning it here so that you are aware. The real point of difference between the banks are the other charges in addition to the currency conversion.
In most countries the most convenient way to fill your pocket with cash is with a visit to the ATM cash machine, and in Italy it is no different. The great thing is that in most cases your ATM card from home will also work in Italy – marvellous!
Before you are ready to do this though you should contact your bank to ensure that your card will be compatible with the overseas machines. Italian ATM machines are called ‘Bancomats’. Generally, if your card has a Maestro, Cirrus or a Plus sign on the reverse of the card, you are ready to go.
Just like at home, you can use money in an account to pay with a card in a shop, like you would any credit card (but the money you will be using is yours and is sitting in your account). Great news if you spot that beautiful Italian bag you really must have. This same card can also be used to withdraw money from the ATM machine. Along with the Plus sign etc on the back of the card you will also have ‘Visa’.
What will you pay for the convenience of these cards?: Fees for these services are varied but they all follow a similar pattern. For instance, the NAB charges $4.00 for every withdrawal and then 2% on the Australian dollar amount you are withdrawing (this fee can vary between banks and can be as high as 3%).
So if I withdrew the euro equivalent of $100, I would be charged $4.00 withdrawal fee, a 2% fee ($2.00) and also as the bank’s foreign exchange rate is .69, roughly another 3% ($3.00). So in effect I am nearly paying 9% (or $9) to have the privilege of changing my dollars into euros and spending them in Italy. That is high!
Travel Money Card
Today it is possible to walk into any bank or some travel agents and buy a money card. This card can be loaded with Australian dollars which is converted into the currency of your choice ie, euro or American dollars etc,. You will be given cards, usually on the spot, which you will be able to use in shops (as a credit card) and also to take money from ATM machines. The day you buy the card, you are given the exchange rate of that day so the card will have euros already loaded onto it.
You will be charged a fee for each withdrawal at an ATM machine, usually around $4.00 per transaction. Some banks don’t charge for the first lot of money you put on this card, but others charge 1.1%. This card has advantages but also disadvantages. It is possible to reload this card when you are overseas by using Bpay online at a cost of around 1.1% – big advantage. Big disadvantage, if you come home with money still on the card, you guessed it, there will be fees to convert your euros back to dollars. The initial cost for these cards also varies. All major banks offer some type of travel money card.
Travelex Cash Passport cards are similar to the above, and some banks including NAB use Travelex. But be very wary, as I was caught out with this one. Travelex in very fine print in the Product Disclosure state:
5.4 When a Card (or Additional Card) is used at bars or restaurants an additional percentage (usually, but not necessarily, 20%) may be automatically added as an anticipated service charge or tip and debited to the Cash Passport Fund. If your actual service charge or tip is less, it may take up to 7 days from the date of the transaction before the difference is available.
What? I was amazed when I realised that this was happening when checking my statements. Whether I tip, or not, is not the business of Travelex! It takes days for this amount, your money, to be reimbursed to your account.
If you pay for your restaurant bill on your last day of your trip and have budgeted so that you have just the amount of money left to cover the cost of dinner, your card may be rejected for insufficient funds, even though you have the correct amount left on the card. So beware. This is one of the reasons I do not use Travelex.
These charges also vary markedly but usually around 2.5 – 3%.The good thing about using a credit card is that if for some reason your card is stolen, you are fully covered for any losses.
As all countries are becoming more security conscious, you will be asked for a 4 digit pin, which you really must have. In Italy it is also not uncommon to be asked for your passport to confirm your identity when using your credit card. If you don’t want to carry your passport with you, just cover the photo page which should suffice.
My Current Choice
Some banks also offer ‘Gold’ Debit/Visa cards. These cards do not charge for the transaction or the currency conversion which is fantastic (so in effect, a saving of $6 on my withdrawal of $100) but of course there is a catch….there is a monthly charge to this card, around $10 a month, but it is possible to register for the card before you travel and cancel the card when returning home. This really might be worth considering for the convenience and also really cuts down on the fees every time you go to the overseas bank. Nab offers the above, although other banks might have similar products.
The other great benefit of some Gold cards is that they can include travel insurance, which is another wonderful saving. Make sure you check all of the requirements for the insurance though before you travel.
Dynamic Currency Conversion
Not long ago when buying something with my credit card in Italy, I was asked if I would like to be charged in dollars, not euros. Well of course, I agreed and thought what a good idea….little did I know that this is another way the merchant is able to gouge even more profit out of my sale by attaching its own currency conversion, usually always outrageous to the transaction. The amazing thing is that your bank will most probably still charge you the currency conversion price as well. If you are ever asked is you would like to do this…just say NO, politely and walk away!
These are things you should do to access your money safely and less expensively when overseas:
- Talk to your bank and then compare the services and fees with other banks. You don’t necessarily need to use your usual bank as it might not offer the best deal.
- Check out the Gold Visa/Debit card.
- Whatever, you do – don’t get foreign cash at the airport – the foreign exchange rates can be crazy and you will really be paying for the convenience- sometimes, unbelievably up to 20%! You can order euros or other currency through your bank.
- Make sure you take a couple of options with you ie, travel money card with credit card or ATM card.
- Don’t keep cards together as you could become a victim of theft. Have a backup. Keep one back at the hotel.
- Advise your bank you are going overseas and gather all contact numbers in case of emergency.
- Don’t take traveller’s cheques. This is outdated and wastes time waiting in banks to exchange them for cash.
- Make sure you know all of your passwords for your accounts and have access to view your accounts online.
- Know how to top up your travel money card, visa debit card etc., and move money from one account to another online.
- Don’t ever use DCC – always pay in euros.
- Always arrive in a country with a small amount of cash, just in case your cards are not working. Have enough for the first two days at least.
- Cash in king in Italy don’t assume that you will be able to pay with a card in a restaurant or an entry fee to a museum – this is not always the case even in the big cities. This is a cash society and you will be asked often to pay in cash. Why: Not only do Italians dislike paying fees to banks, they also don’t like revealing their financial status to the government, or tax man.
- If an ATM machine doesn’t work with your card, don’t assume that your card isn’t working – try several machines as some ‘bancomats’ don’t take foreign cards.
- Don’t walk around with wads of cash…take what you need for a couple of days, no more just in case of theft.
- Take a copy of all your cards, front and back, leave a copy at home and email a copy to your hotmail account just in case of theft.
If you think about fees before your trip away, you won’t be too disappointed when opening statements on your return. Unfortunately, though there is no way to escape from them completely.