Currency exchange - what you need to know for your next trip
Money matters in every aspect of traveling. From booking your flights to choosing accommodation, money is a significant consideration.
While debit and credit cards are widely accepted in many of the world’s best destinations, cash is necessary to save you from paying for charges. Whether you like it or not, carrying extra local notes will ease out your transactions with small merchants and stores abroad.
It is undeniable that currency exchange entails specific charges, too, but, it is something you should not overpay for.
GoBear has prepared a list of tips for you to be smart about exchanging currencies and save you from further hassles and overpayment.
Do read about the spending habits in your country of destination
Having enough knowledge about your next destination is a practical move, especially if you are traveling alone.
Knowing how people spend, how much taxis charge and what fees are included when you transact with your cards will help you gauge the budget for your entire trip.
More importantly, this will give an idea of how much cash you need to carry for things such as tipping, which require you to pay in cash.
For example, tipping a hotel porter with cash usually requires 20 to 50 baht. Some countries would generally accept tips based on a percentage of the bill, such as 15% in Amsterdam.
Withdraw cash from overseas ATM only if you have to
Withdrawing money from a local ATM overseas should always be used as a last resort when you’re running out of cash.
That’s because ATM withdrawal usually come at a hefty price due to unfavourable exchange rates. Some local banks charge up to 2% transaction fees for every withdrawal.
That said, if you have to do a cash withdrawal from an ATM, do it in one withdrawal to avoid spending more than you should on the administrative fees.
A wise traveller should know these facts before boarding that plane to save you from making those expensive mistakes.
Do not exchange currency at the airport
The exchange centres at the airports are known for their poor exchange rates and high service fees.
In a research conducted by The Independent, passengers usually lose around $500 in simple exchange transactions 1,000 sterling to one currency.
The study also notes that “exotic” currencies fared worse at about $670 loss.
Watch currency movements and compare rates
The best way to know if you are getting the best deals is to compare current rates.
Travelex even recommends checking the total cost of buying and not just the individual currency scale. Some bureaus may have low prices but may hit you with high commission and admin costs.
Planning for your trip also means allowing enough time for you to watch currency movements. Watching the rise and fall of currency values will give you an idea of when is the best time to buy travel money.
Experts advise that travelers should start comparing and shopping for rates one month before their date of travel.
Don’t buy currency with your credit cards
It's easy to walk in and swipe your credit card for cash with a currency exchange. But credit card providers might hit you with above average currency exchange rates.
Always do a cash exchange rather than use your credit card to buy the required currency. No cash on hand just before you fly off? It makes more sense to cash out from your debit cards and use the cash to buy another currency.
If you still insist on using your credit card, some banks do provide incentives for overseas usage. Some banks allow free foreign transactions and low-interest withdrawals overseas. We curated a list of the best credit card for overseas spending. Spend overseas to accumulate airmiles or get cashback.
For example, if your DBS card is associated with UnionPay, the fees and charges for any overseas ATM withdrawal are waived.
Consider prepaid cards
One of the best alternatives to carrying cash is to use a prepaid card that gets locked at the exchange rate on the day of purchase.
It may not have the chance to give you a better price but knowing it won't fluctuate gives you the peace of mind.
However, some countries may not allow the use of prepaid cards for point-of-sale transactions.
Understand the effectiveness of the currency
Knowing the exchange rate is not enough. You also need to know some facts about the money you want to buy.
For instance, the US dollar is not just used in the United States but is also considered the official currency of the Marshall Islands, Caribbean Netherlands, Panama, El Salvador a, d Ecuador.
Even if USD is not an official currency, some destinations still allow transactions with this currency. Cambodia, Philippines, Myanmar, Vietnam and the Bahamas accept USD as payment.
Note this: although the US dollar is widely accepted in Myanmar, you should make sure that the dollar has no rips or folds.
The Euro is the official currency of 19 countries including Italy, Portugal, Luxembourg, Spain, Slovenia and Latvia. It is considered a de facto currency in Andorra, Monaco, Vatican City and other European microstates.
On the flipside, some currencies might have some odd quirks entailed with them. For example, Moroccan dirham cannot exchanged internationally.
Other currencies with restrictions are Armenian dram, Barbadian dollar, Cuban peso, Egyptian pound and Fijian dollar.
Buy sufficient currency
Not too many, and not too little. It’s important to budget just enough money for your trip.
A good exchange rate might lure you to buy more than what you need. Travellers should never buy too much currency because travelling with a large sum of money is generally unsafe.
Most of the world’s best destinations are generally safe for travel, but pickpockets exist anywhere.
Moreover, you will end up losing money when you try to sell unused local currencies after the end of your trip.
It is always practical to have a combination of credit cards, prepaid cards, traveller's check and cash for your next trip abroad. Diversified forms of payment will help you manage your budget.
Break the big notes
The purpose of carrying cash is to pay for small purchases in stores and merchants which do not accept cards. Make sure you carry a combination of smaller bills before heading to suburban tourist destinations.
Since most currency exchange will issue big notes, your first order of business when you arrive is to purchase a small ticket item and get the change in small notes.
It is inevitable that there will be unused currencies after your trip. Though these may seem to be a perfect memento of your journey, there are other practical ways to dispose of them.
For instance, you can sell them back to exchange centers. Shop around for rates and wait a while until the selling price is good. Check for exchange bureaus that offer buy-back guarantee for leftover notes.
Coins are generally not accepted for currency buyback. However, some airlines have programs that lets you donate the coins to charities. Just drop the coins in an envelope provided in the flight.
Currency exchange jargons
Before purchasing your travel or holiday money, get familiar with some of the FX jargons below:
- Exchange rate – The rate used when one currency is exchanged for another.
- Fixed exchange rate – the official rate implemented by monetary authorities for currencies usually allowing some of them to fluctuate within the upper and lower bands.
- Floating exchange rate – The rate used for exchanging currencies based on supply and demand.
- Forex – the buying and selling of currencies in an over-the-counter market.
Although credit cards are already widely used in many popular tourist spots, cash is still king in other exotic destinations in the world where swiping for souvenirs is not yet allowed.
Knowing how to get your next local currency at the best rate will help ease out the financial hassles of traveling and even save a little for your next getaway.