How To Exchange Money In a Foreign Country

To spend money abroad, it is necessary to exchange American currency for the currency of the destination country. That is true whether you are using cash, credit and debit cards, or traveler’s checks. The exchange rate determines how much foreign currency you get for each U.S. dollar, and the rate varies, depending on what form of money you are exchanging (cash vs credit cards, etc.), where you exchange it, and when the exchange takes place.

What form of money is being exchanged (cash vs. credit cards, etc.):

  • When changing cash, you have to accept whatever rates are offered in the place you happen to be.  There may not be time to move around and look for a better rate, especially if you are walking. But, when you exchange cash, you get the exact rate posted outside the door. You may not like the rate, but there will be no additional fees.  
  • Credit cards offer much more convenience when shopping, and they are safer to carry than cash. But be aware that there is a fee for the exchange transaction and that the card company exchange rate you pay may be less advantageous than you might be able to find if exchanging cash.
  • Traveler’s checks offer travelers excellent security for the funds they bring abroad, but they involve some extra cost, as well. You may pay an initial fee to purchase the checks, although banks sometimes waive these fees. Money changers usually add an extra fee when you want to exchange traveler’s checks, as opposed to cash, or they offer a less-advantageous exchange rate.
  • Sometimes, retail stores, restaurants, and hotels will invite you to pay them directly with your traveler’s checks. This certainly works and is convenient, but beware:  Individual retailers often charge inflated fees for the transaction and they do not post exchange rates. And what if the amount of your purchase is less than the amount of your check?  The exchange rate will apply to the full amount of the check you cash. So you could end up paying a lot more for that dinner than you intended. It's wiser to change money at a regular foreign-currency exchange establishment.

Where the money is exchanged:

  • Avoid changing money at your neighborhood bank before departure. Although your bank branch in the United States can order the currency for you, it's not something they do very often, and it will take time. More important, the exchange rate they offer is less advantageous, so you will receive less foreign currency for each dollar you exchange. 
  • When first arriving at your destination country, it's always wise to cash a small amount of money at the airport, so you will have cash for a taxi or bus into the city. But don’t cash a lot. If you walk up to an exchange window at the airport, you will get less for your dollar, because the money changer has little competition at the airport. Passengers are a captive market, so they pay more per unit of foreign currency.  
  • Few travelers are ever thrilled with the foreign exchange rates in any location. But on a touristy street in a popular overseas destination where there is more competition among currency exchanges, you’ll get a slightly better rate. Don’t be afraid to shop up and down the street or in different areas of the city, and it doesn't hurt to pay attention to the posted rates wherever you go.
  • If you travel to a country whose currency is worth less than ours, you'll get a lot more foreign currency for each dollar. This is especially true in developing countries. But if you travel to a country like England, where it takes more than one dollar to buy a British pound, you will discover that everything you buy seems very expensive. 
When the money is exchanged:
  • Currency exchange rates change constantly. Theoretically, if you wait, you may get a better rate. But be aware that rates go both up and down. Tomorrow's rate may cost you more.  
  • With credit and debit cards, you have no control over when your currency is exchanged. Card companies exchange currency in bulk, consolidating currency from many transactions, and that happens at a time of their choosing, not immediately after your purchase. If the rates are up when the company does the exchange, your bill will reflect the extra cost. Card companies also charge you a fee for the exchange transaction.
Learning the value of the foreign currency by creating a cheat sheet:
It’s helpful to bring a pocket calculator when you travel abroad. After you change money for the first time, figure out exactly how much of the foreign currency it takes to equal $1, $5, $10, $50, and $100. Jot these on a piece of paper, so you will quickly be able to estimate how much something costs before you buy it. Your cheat sheet will help you avoid paying too much for something, while you’re still getting used to the currency in your destination country.