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It's frustrating. When everyone was planning their vacations earlier this year, the euro and the pound were bashing the dollar. The cost of a McDonald's Big Mac was $5.34 in Europe this summer on average, or roughly twice what it cost here at home.
But in recent weeks, the dollar puffed up in value and reached a two-year record high against the euro. A $1.27 gets you a €1.
The dollar has also strengthened against the British pound. Last spring, you needed $2 to get a British pound. Now you only need $1.61—which is a good thing.
Paradoxically, right at the moment when the dollar is strengthening, you are probably cutting back on your expenses and not traveling as much.
Worse, after this economic storm passes, the dollar will probably weaken again. But by how much? Consider that it has fallen about 20 percent against the dollar since last spring.
I'm no currency trader, and future trends are anybody's guess. But let's say that you thought that there would be a 10 percent rebound by next August. If you did, what would than mean for you? Suppose you set aside $2,000 today for a trip to western Europe next summer. That money will fetch you 1,576 euros today. If the greenback gains in value by 10 percent next summer, the same $2,000 will buy you fewer euros—the equivalent of losing roughly $200.
We've come up with a couple of ways for you to lock in today's low exchange rates for a trip within the next year—whether it's euros or pounds you'll need.
Option one: Hoard euros and pounds now. Get them at a foreign-exchange firm like American Express—or at a bank like Wells Fargo.
Sadly, if you do this here in the U.S., you'll pay high fees. Wells Fargo, for instance, charges a shipping fee is $8 if you order foreign currency online. (If you have an account with Wells Fargo's bank, you can pick up the currency at no charge at one of its locations.)
How does that $8 fee compare to the cost of using your ordinary ATM bank card to withdraw cash overseas? Well, the answer is pretty complicated. For example, say you use your bank’s debit card to withdraw $400 equivalent of Hong Kong Dollars from an ATM. You would typically (with a major bank like Citibank or HSBC) be charged 3 percent for the foreign exchange conversion and a foreign transaction fee of about $15. You might also get a $2 foreign ATM fee (the same as if you withdrew from an ATM belonging to a different bank than your own in the US.) Total cost: $29 for a $400 withdrawal. That equates to roughly 7 percent fee. But on the other hand, your bank would offer you a pretty good foreign currency exchange rate through Visa, Mastercard, or a similar interbank system. In contrast, Wells Fargo (like other banks) marks up the currency exchange rate by about 3 to 4 cents on the dollar. So there is a "hidden" fee.
The short answer: The fees are pretty much the same whether you get cash, use an ATM, or a credit card. But if you get your cash now and hoard it for later, you may save money by "hedging" against a weakening of the dollar's value internationally.
Option two: Buy a pre-paid currency card. Consider the Travelex Cash Passport, which debuted in euro- and pound-denominated versions in the U.S. last May.
You give Travelex your money and it converts it into euros (or pounds) at today's rate. You can then spend those euros (or pounds) whenever you want in the coming months and years.
The Cash Passports are pre-loaded travel cards. There is no bank account involved. You put a set amount of money in the account and spend it anywhere that accepts Mastercard. (The cards look just like credit cards and have the Mastercard logo on them.)
If you lose the card, call Travelex and it will stop withdrawals on that card and issue you a new one. Traveling with someone else? You can have a second card for them with access to the same shared pool of money, so that both of you stick to your joint travel budget.
You can use the card to pay for hotel stays, restaurant meals, or purchases at stores—without any fee.
You can also withdraw euros from ATMs that operate on the Mastercard, Maestro, and Cirrus systems. (Travelex says its Cash Passports are on so many ATM networks that it has never heard of anyone being unable to withdraw cash from an ATM in western Europe.) As usual, the ATM you use may charge a fee of about a couple of dollars. Plus Travelex will charge a fee €1.75 or £1.25 per ATM withdrawal, but no percentage-based fees.
On the plus side, you don't pay conversion fees (remember the 3 percent fee we talked about above?) or a transaction fee (that's either flat like $15 or a percentage, like about 1 percent). You skip those.
On the downside, there is a different, pesky fee to worry about—but we'll tell you now how to avoid it. You see, if you don't have "activity" on your card within 12 months, Travelex will charge you an inactivity fee (roughly between $3 and $4 a month). But you can avoid this fee by topping off the card—for free—with a little more cash every 12 months.
A card costs $10 to buy from a Travelex retail location. (Some banks also sell the card and they may charge a small purchase fee, too.)
We mentioned above that banks mark up the cost of euros over the wholesale rate quoted on websites like xe.com—which are the rates used when money is transferred electronically between banks. Consumers pay a markup of about 7 percent on these rates when they withdraw money through an ATM. Travelex charges a similar markup over wholesale: It's approximately 5.5 to 6.5 percent. When you factor in the $10 fee for the card, buying a Travelex Cash Passport is a competitive option compared with buying euros from a bank or currency dealer.
Cash Passports are sold at more than 100 retail Travelex locations in the U.S. Please be sure to bring a photo ID to buy a card.
You may also buy it online, thought the process appears to be more complicated, plus you have to pay a shipping fee of $15.
You'll soon also be able to purchase the card at community banks, credit unions, and U.S. Bank branches. We recommend you look up the nearest seller of the card at Mastercard's locator site.
For more info on how the Cash Passport works, call Travelex at 800/287-7362.
[Of course, like everything in finance and life, nothing's perfect. By putting all this money into cash, you are missing out on gains you could make by instead putting your wad of cash into an interest-bearing account. And who knows, maybe inflation is going to go through the roof.]
The fine print:
Please be aware that in Britain, you may have difficulty using the card (as well as standard debit and credit cards issued by major U.S. banks) at some pubs, gas stations, and convenience stores that require a card to have a "smart" microchip built into it (instead of a magnetic strip, which is what the Travelex Cash Passport card has) and a personal identification number (or P.I.N.). Executive vice president of Travelex Christopher Russell says, "We have projects under way to include Chip and P.I.N. within the coming 12 to 18 months." Note, major banks also have plans underway to update their credit cards.
Bonus material! While we're on the topic, could you open an account in a foreign currency in an online bank? The answer is, sadly, "not easily." You can't open an overseas bank account from the U.S., and you have to have an overseas bank account if you want to make ATM or bank withdrawals while you're traveling abroad. Of course, on your next trip overseas, you could open a bank account locally. (Call ahead to make sure you bring all the necessary personal financial documents.) That way, you could keep your money in euros (or other currencies) and withdraw it easily when you travel someday.
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For Turkey visitors it is the same scenario.
at the beginning of the year 1 USD was equal to 1.2 YTL but now 1 usd is 1.7 YTL so people who came from USA money worth almost 30 percent more then the beginning of '08. Since we are not economists we can not arrange our travel arrangements according to the global financial markets. But web sites like http://www.yestatil.com can make hotel bookings more reasonable. but unfortunately only for Turkish because English edition is not ready. bon voyage...
Posted By evren on November 2, 2008, 6:26 AM
Seems foolish to me. With all the fees you mention, it's going to cost you the same as the other options while tying up your money. Your article doesn't mention how to get cash back out of it if you decide not to travel abroad; what additional fees are hiding there? I say find ways to get cash in hand; that keeps YOU in control of YOUR own money.
By the way, where did you get the idea that you'll be charged a $15 fee for withdrawing foreign currency while abroad using your ATM? That's hogwash. All you pay is the conversion fee and the minimal ATM fees. And the article starts with highlighting how you'll have to pay an $8 shipping fee to exchange money online (how terrible!) but then concludes with the $15 shipping fee you'll pay to buy one of these cards online, which somehow just isn't as terrible as the $8 fee. Where's your editor on this one? Sounds like pure advertorial to me. What's the author getting for writing this one? What kind of extra advertising did the company pay for to see this article in print? Don't sell out, BudgetTravel!
Posted By BS on November 3, 2008, 12:37 PM
But on the other hand, your bank would offer you a pretty good foreign currency exchange rate through Visa, Mastercard, or a similar interbank system.
Posted By Frank on November 3, 2008, 12:56 PM
Hi there,
No advertorial here. I laid out the first option which is to do exactly what you want: Keep your money in cash. The $8 shipping fee has to be paid to do this. I noted that you can even avoid this $8 fee if you have a Wells Fargo account and show up at one of their retail locations in person. That's a good deal! That's why it's the first option!
The second option is to buy the card. Some people don't want to keep or carry hundreds in cash, so the security options on the card (refunds if lost, etc.) may be worth the extra fees.
As for withdrawing money from an ATM, the $15 fee was from an actual bank account statement for an actual withdrawal on ATM that is foreign to the bank. A percentage fee may be charged instead of the $15 but a transaction fee has become pretty commonplace, except for Capital One's cards.
And when you withdraw foreign currency as a cash advance on *your credit card*, you start accruing interest plus get hit with a separate fee.
But feel free just to use euros. We have no advertising deals with Wells Fargo, either. I used them just as an example. Other companies, such as American Express and Thomas Cook, also offer foreign exchange services here in the U.S.
Thanks for reading!
--Sean
Posted By Sean on November 3, 2008, 1:21 PM
I'm with you. In fact I'm off to pick up the Euros I bought last week when I sensed that the Dollar had temporarily peaked against the Euro. (A couple of days later, the Euro is about what I paid for it, but I suspect it'll go up a bit by the summer.)
A friend said "If you believe that, why not invest in a ETF foreign currency fund?" I responded, "I can't go to Europe and eat on that ETF fund :-)"
Posted By David Emery on November 3, 2008, 2:18 PM
Is this gamble worth it? I looked at this for the Cash Passport card.
My transaction fees for my this years trip (my bank charges 1%) was about $20US (we went cheap). While last year it was about $40US for our trip. So lets say an average of $30.
So some quick math at today's rates ($1.26US=€1). Lets say I spend $3000US, so $30US in fees. $3000US=€2370. Well if the $ gets slightly stronger ($1.24=€1) Then after your exchange €2370*$1.24=$2939. So you lose $61 in value but save $30 in fees and you had to pay $10 for the card.
Seems like it might not really be worth the trouble. Even at 2% bank fees you save $60. Nothing saved. Plus you lose the interest sitting in your account.
Overall this really doesn't look like its worth the gamble.
Now if its goes the other way it was the best decision you ever made.
Posted By Kevin on November 3, 2008, 2:26 PM
You didn't mention using a local credit union debit card (no exchange, fixed ATM fees) or the Capital One Visa card (no exchange fees). Do a little homework!
Posted By Tom on November 3, 2008, 3:57 PM
I love our readers! So many good points. I do mention Capital One in my comment above, but didn't in the post because BT has mentioned it before. And, yes, a local credit union's debit card will usually not charge you these pesky fees (though the foreign ATM probably will). All good options, though!
Posted By Sean on November 3, 2008, 4:15 PM
re: opening a foreign bank account. on last trip to frankfurt, i tried to open account, but was told impossible without local address. heard similar response in mexico, but was told i could open an "investment" account (rather than a bank account) at Lloyds. btw, not opening a euro account in germany a year ago has been a fantastic outcome for me!!
Posted By erik on November 4, 2008, 10:32 AM
I always use an ATM card with a Mastercard logo from my small local US bank to get euros from French ATM machines. My bank charges $1 per transaction, regardless of the amount, and the French fee appears to be a percent of the amount withdrawn. Their charge to my checking account, for example, was 79 cents for 250 euros. The exchange rate ran pretty much identical to my Capital One credit card purchases.
Posted By Lee on November 4, 2008, 6:37 PM
Consider this idea: Buy a currency ETF in your brokerage account to hedge exchange rate changes. Sell the ETF when you head to your trip so now there is cash in your brokerage account. travel like normal. example. Trip will cost an estimated $8000. buy $8000 in a Euro ETF. If the dollar drops, you gain value in the ETF so that when you sell the etf its worth more dollars say $8500, but with the exchange it's worth the same in Euros as when you started the hedge. So you've effectively locked in the exchange rate. Of course, if the dollar strengthens, the ETF looses value in dollars, but again, you get the same number of Euros as you planned.
Any pros out there willing to critique this idea. I'm looking into it now for a 2009 trip to Europe.
Posted By Matt on November 19, 2008, 1:13 PM
It's not the $8 fee that is important. It is the competitiveness of the exchange rate that you are offered by a bank or other company. My experience is that they are not all the same at any given moment.
Posted By DD on November 29, 2008, 3:58 AM
can i buy euros and keep it in my home so later i can exchanged on wellsfargo bank's or other bank's like buying vnd dongs???
Posted By mickey on January 1, 2009, 8:47 PM
I have found the fees and surcharges at American Express to be onerous.
For my last trip to Europe in October, I used Travelex for the first time. I wasn't too pleased with their rates either so I went to their local office and bought only enough Euros for my first day or two in Italy. Once at my first stop in Italy, Florence, I used my VISA debit card to purchase additional Euros. So long as I used a Bank ATM, not one of the many money changers. the conversion rate was very attractive and the fees were only a few dollars per transaction.
I also used my VISA debit card at restaurants and bars. From past trips abroad, I found that they usually give you a decent rate of exchange and it saves trips to an ATM.
Before I returned to the USA, I made certain that I had euros to spare for my next trip.
Posted By Jack on January 5, 2009, 7:37 PM
If you are planning to hedge your currency bets with an ETF, don't forget the short term capital gains you will incur by selling the ETF less than 12 months from purchase, transaction cost, and risk involved in currency investing! OUCH!
Posted By J on January 15, 2009, 1:31 PM
I want to buy 50k in euros----i live in the us---whats the best way to do that
thx
Posted By mary snook on January 17, 2009, 4:22 PM
Many of the postings here mention purchasing currency from "Banks" or the two most popular foreign exchange outfits in the US, American Express and TravelEx, both of which charge high service fees and even higher rates of exchange. If and when clients compare us to these two companies, we have no problem whatsoever in asking a client to walk down the street to the local offices and see for themselves. As expected all of them come right back. What I am telling you is "DD" is right, no matter who you go to, make sure that their "RATES" are competitive, not their fees.
The fee you pay, whether it is $8 at Wells, or $10 at International Currency Express, is more or less irrelevant, since it is their rates that will guarantee you the most euro or pounds.
Look around, you'll see what many have come to find, Airport, Banks, TravelEx, and or American Express, all have very expensive rates of exchange.
Another thing that is worth mentioning is the difference in rates and fees that banks charge. Some will be kind and remember the good old philosophy, good customer service keeps and brings in customers. Unfortunately, some of these banks have become too big for their own good. check with your bank before you leave, make sure you won't have to give them the shirt off your back when you return. Believe me, they will be more then desperate to take it.
Posted By Noe Rosales on February 9, 2009, 7:50 PM
Noe Rosales, not sure if I am reading you right. I went to your website and looked up rate for USD->Euro, your rate for echeck is 1.39 while Wells Fargo gives 1.38.
Not sure who is more competitive here.
Posted By Johnny Wong on April 8, 2009, 3:05 PM
The rate for International Currency Express is 1.36 versus Wells Fargo's rate of 1.38 today. Seems like Wells fargo is more expensive and if I wanted to buy 1000 euros it would cost $1,370.00, versus Wells Fargo at $1,388.00. International Currency Express would be cheaper by $18.00. In this economy, $18 is a lot of money. Mr. Wong, maybe the rate changed during the time you pulled up the numbers. Seems like International Currency Express is more competitive.
Posted By Emma Hawty on April 27, 2009, 7:08 PM
Everyone is telling me that when I go to Italy in the summer to bring traveler's checks, but some of the blogs are suggesting to bring cash because I would not have to worry about figuring out how much they will change my traveler's checks for. Which one is best? Obviously American Express will sell traveler's checks, but their site is not working for me to check their rates, who else sells them? Would it be best for me to bring cash instead?
Posted By Emma on April 27, 2009, 7:36 PM
I would love to find the best way to get close to the real exchange rate - I hate using credit cards, bank cards, and electronic bank forwarding transactions as all of these come with all kinds of fees and poor exchange rates. Please keep suggesting ways to convert close to real rates. One thing though: Last year I brought travelor's checks with me (AE) and when I went to the banks over in Spain (and the year before that in Greece) there was almost no transaction fees and the rate was virtually at the standard 'real' rate. It made me very happy and wonder whether any of the ways to buy euros in the US could match that. Any comments would be welcome.
Posted By R Traverler on May 3, 2009, 8:16 PM