I’ve been asked on where to get local currency, and wanted to pass along my thoughts on where it’s optimal to do so.

Don’t Exchange at the Currency Exchange Counters

Let me get this out of the way first, it’s a money-losing proposition to exchange at the currency exchange counters you might find at an airport. There are often large spreads on the exchange of money–after all, the business exists to make money and has both rent and employees to pay for. So it shouldn’t come at a surprise that you’re not getting the best rates here.

Just how bad can it be? Below is what you would encounter if you check the exchange rate between USD and CAD. If you were to exchange one US dollar, you would receive 1.37 Canadian dollars in return. Simple enough.

Now let’s look at the spreads at LAX, and you’ll see that at this currency exchange booth, you’ll only get 1.16 Canadian dollars for your one US dollar. For every US dollar you exchange, you’ll be paying 21 Canadian cents for the service. That might not matter much for small transactions, but for larger trades, it can be a bit painful. Obviously, the spreads you pay will vary by company and by country, but generally I would avoid using these facilities.

I know some people use this method to convert their money back to USD when coming home, as they might not have much use for the local currency at home, but it might be more cost effective to keep the foreign currency if you ever expect to go back. And while this does present an option for people unable to open bank accounts, I could also make the argument that you shouldn’t be traveling if you can’t open a bank account.

Do your best to avoid being Michael Scott in this situation…

@theoffice_101

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Foreign ATMs — My Preferred Method

What I like to do is to show up at my destination and then find an ATM to exchange money when I arrive. Generally speaking, you’re likely to find an ATM in most major airports. You might also find them on the streets or in convenience stores in more urban locations. By converting at these machines, you’ll find far better rates than at dedicated currency exchange centers. But there are a couple of things to keep in mind if you go this route:

• The two types of ATM fees you are most likely to encounter are out-of-network fees, if your bank charges them, and an ATM fee, which covers the cost of maintenance of the unit itself. You’re best choosing a bank that reimburses these fees, such as many credit unions or the Charles Schwab debit card (which is what I use).
• If you are ever asked to accept a fee in local currency or in your home currency, always choose the local currency. You may be accepting a sub-optimal exchange rate if you choose your home currency. This also might not be relevant if your bank pays for the transaction fees, but it’s still good practice to just select local currency for everything.
• Some countries might have restrictions with international bank cards. Japan in particular comes to mind, where you’ll want to specifically seek out 7-11 stores and ATMs (called 7-Bank) as they allow for international cards.
• Always mind your surroundings when using an ATM, as there could be people looking to pickpocket you. Consider wearing a fake wallet on you to minimize your risk of losing money you’ve just withdrawn.
• Take caution when withdrawing more than you’re legally allowed to bring internationally, as customs agents might ask what you’re doing with so much cash (they might suspect you’re dealing drugs).

Exchanging Currency at Home (via Banks)

Most major banks offer a currency exchange where you can specifically request certain types of currency and they withdraw the funds from your account. I have done this in the past and, in my experience, it does take some time for the currency to be shipped to a local branch. Depending on the currency requested, there could be special holds or restrictions, as well as bank representatives inquiring a bit on why you need that currency. There may be shipping expenses you would have to pay.

Overall, I would consider this an option for those who want some money on them before they arrive at their destination, if you don’t have a debit card that reimburses ATM fees, or if you’re not convinced you’ll easily find an ATM that works for you. It can also be an option if you want to take advantage of a good exchange rate that you suspect might not be there when you do travel to the country. Just remember to do this well in advance of your trip and not at the last minute or you risk not getting the money shipped to you in time.

The “Black Market”

I don’t want to necessarily condone the existence of the “black market” of currency exchange, but know there are some destinations where there exists an unofficial exchange rate that varies from the official one. An example of this would be Argentina, which suffers from hyperinflation. I haven’t personally experienced this, so it’s hard for me to comment on it, but remember that any arbitrage situations may involve some risk. It’s best to do your research so you don’t get ripped off if you do choose to take this route.

Don’t Exchange Currency at All

This might sound dumb in a post talking about how to exchange currency, but it’s worth pointing out that it’s simply not as needed these days to have cash on hand as there once was. You can get around fairly easily in most countries and credit card adoption is generally good, and improving all the time. It might still be necessary at some locations to carry cash–smaller stores and restaurants might not have the capability and things like vending machines might not accept cards. But by and large most expenses can be handled via credit cards. Just remember:

• Use a credit card that does not have foreign transaction fees. Generally most travel-focused credit cards (that typically have an annual fee) will be ones where the transaction fees are waived.
• As with ATM withdrawals, never select your home currency when given the option. Take the local currency and let the bank convert it for you at the current exchange rate.
• Some banks might be easier to use while abroad than others. For example, American Express adoption is still not ideal within Europe, but I’ve heard that in Japan, it’s actually easier to use American Express than a foreign-issued Visa or Mastercard.

How do you handle currency exchanges when you travel abroad?