How to save money when exchanging money

By choosing the wrong venue for your exchange transactions, you can lose several percentage points on every transaction!

With a fluctuating world economy and the U.S. dollar selling at varying rates against other currencies, it becomes more and more important to avoid or reduce the up to 10% loss that one can incur when changing currency or traveler’s checks into foreign funds.

This statement, with its 10% reference, will come as a shock to many. Yup, whenever you exchange money, chances are you’re giving away around 10% of its value during the transaction to middlemen. But every little bit counts, and the place to begin saving is during the initial purchase of traveler’s checks for the trip.

Purchase point

For years, the U.S. Department of Justice has investigated the strange coincidence that almost all sellers of traveler’s checks (most of them banks) charge a uniform fee, ranging from $1 to $2 per $100. Since these banks enjoy other forms of income from the lucrative travelers check business, they really don’t need that fee, and a few of them waive it. As the first step towards saving up to 10%, you should buy your checks from a bank that charges no fee. Often, the friendly manager of a small bank will waive the fee for a good customer. Some banks waive the fee for people with special accounts, or for members of their travel club, or for senior citizens, or for any number of other promotional reasons. Ask your own bank manager to consider waiving it for you, a long-time depositor.

At your travel destination

Once abroad, you’ll discover that most exchange offices charge both a fee and a commission for changing your traveler’s checks into the local currency, in addition to imposing an exchange rate heavily weighted in their favor. Calculated even conservatively, those fees and commissions can often add up to as much as 8% of the average transaction at those small one-person booths called “Bureaux de Change” that are scattered about Piccadilly Circus and Leicester Square, Place de la Madeleine and Via del Corso, in London, Paris and Rome.

Therefore, the first, unbreakable rule of smart travel is to never change your traveler’s checks (or dollar currency) in any such exchange office, but only in a big, huge bank in the very center of the city. Not only in a big, huge bank, but in a bank affiliated with the issuer of the traveler’s checks you’re using. Cash Barclay’s Traveler’s Checks at a Barclay’s Bank in London, cash American Express Traveler’s Checks at an American Express Office, Thomas Cook Traveler’s Checks at a Thomas Cook office, and so on. If you do, you’ll usually save the “encashment fee” that alone can amount to 5% and more at a “Bureau de Change.” (I say “usually” because a handful of European countries require a fee by law, and in those countries, even the well-known traveler’s check companies can’t avoid it. Since the mandated fee is a flat sum per transaction, regardless of the amount you cash, it pays – in those countries only – to cash a fairly large amount of traveler’s checks at a time, in order to reduce the percentage of your loss).

But even if you can’t get to a bank affiliated with the issuer of your brand of traveler’s check, go to a bank nevertheless; they invariably impose much lower commissions for cashing traveler’s checks than the small “Bureaux de Change” to which I’ve referred. It almost always pays to stifle that impulse to dart into a closet-sized Piccadilly Circus currency shop, and walk a few further blocks instead to a big, stuffy bank. You’ll save.

Airports and hotels

The only place where banks themselves turn into the polite equivalent of highway robbers is at airports. In my experience, the moment a bank is given an airport location, it becomes just as rapacious, just as immoderate as the flashiest money-changer. Possibly because they must pay heavy concession fees to the airport for the right to deal with a captive audience, the rates, commissions and fees of airport banks are calculated to cost you as much as 8% of the amount you exchange, considerably more than you’d pay at the very same bank in town.

The other locations where you should never cash traveler’s checks are hotels (you should also never send laundry from, or make international phone calls from, a hotel). Hotels regard money-changing as a “profit center” opportunity. While their fees and commissions may be reasonable, the exchange rates they use are ridiculous.

To summarize this initial point: always cash your traveler’s checks in a big, in-city bank. And try to use a bank affiliated with your brand of traveler’s check.

Brands of traveler’s checks

But which brand of traveler’s check should you buy? In my firm view, any of them, since there are very little differences among all major brands. All such companies maintain literally thousands of affiliated offices overseas that will replace your checks if they are lost or stolen, and with approximately the same speed and efficiency. I once visited the refund offices staffed by hundreds of employees and equipped with hundreds of computers and telephones at the Florida headquarters of a major, travelers-check-issuing company – and it was not one of the top two or three firms. Buy the brand handled by a bank that will waive the issuance fee.

Currency

Should you, though, buy dollar-denominated traveler’s checks or those in foreign currencies – Euros, pounds and yen?

Contrary to the advice you’ll receive from well-meaning friends, there is no answer to that question. If you think the dollar is about to decline in value in the time between your purchase of traveler’s checks and your use of them, then buy foreign-currency traveler’s checks. Then, if the dollar does decline, you’ll gain. If you think that the dollar is about to strengthen, then buy dollar-denominated traveler’s checks; and if you’re right, you’ll be better off. Trouble is, you’re gambling either way, and since you don’t know what the currency markets will do in the weeks ahead, there’s no sure way of making the choice.

Tussling with that conundrum, one banker-friend of mine advises people to “hedge.” Buy half your traveler’s checks denominated in dollars, he says, and the other half in a foreign currency, and you can’t lose; when one declines, the other usually strengthens, and the total amount of your funds stays absolutely even.

Whatever decision you reach on any of the above issues, you should at least convert some money to your destination’s currency to allow for any unexpected emergencies upon arrival.