What you need to know about foreign currencies

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When you’re traveling, it can be confusing to know how and where and when to exchange money. Should you use local ATMs or get money before you travel?

Here are a few money-smart travel tips to help you get the most out of your dollars.

Remember that foreign currency is always fluctuating. In 2013, the Canadian dollar was on par with the American dollar. Today, the loonie trades for seventy-five US cents. Rates go up and down throughout the day and there’s little that you can do about that. But you can be strategic about when and where to buy.

Where should you exchange your money before traveling?
Before you exchange any money, check the rate at the Bank of Canada website or xe.com. You’re not going to get this amount but you can use it as a baseline. The banks and foreign exchange booths put a markup on rates.
For US dollars, for example, banks and kiosks may add about 2.5 to 3%. If the currency is not in demand, that premium is higher. So if you’re getting anything other than US dollars, make sure you order the cash in advance. It could take up to five business days for it to arrive.

Now you could just get US dollars because some countries will let you pay in American dollars or at least exchange it. But ideally you don’t want to exchange money twice — say from Canadian dollars to US and then to Thai baht — because you’re going to lose twice in exchange fees.

The next step is to shop around. Check your bank, credit unions and foreign exchange shops. Generally, kiosks at airports or high traffic tourist areas have the crappiest deals. Rent on prime real estate is expensive and so is storing and securing cash, so they’ll pass those costs to you. Plus, they know you’re in need of that cash. When I was at the airport a few weeks ago, the rate for US dollars was more than 10% above the baseline and it charged a $7 flat fee per transaction. “They’re trying to prey on the convenience so commissions will be higher,” says Terry Ritchie, director of cross-border wealth services at Cardinal Point Capital and author of The Canadian Snowbird in America.

If you travel to the US a lot, consider opening a US dollar account with your bank. You might get preferred exchange rates when moving money from your US account to your Canadian account. Tangerine, for example, offers a free US dollar account where you can park US bucks.

If you’re looking for the absolute cheapest place to get foreign currency, consider opening an account with a wholesale foreign exchange provider. If you’re looking to exchange a large sum of money, places like Knightsbridge Foreign Exchange guarantee that they’ll beat the banks. Knightsbridge’s markup is about .5% above the posted rate.

As I said, rates are constantly changing. Because the ups and downs can be hard to predict, you could, as a strategy, buy a little every week until you leave to average things out.

If you’re traveling for a month, exchanging a lot of money before you go might not be the safest bet. What options do you have if you don’t want to carry a ton of money?
The benefit of exchanging money here is that you can take your time and you can do the homework. You’re in control. When you’re at your destination, you don’t want to be running around comparing rates at kiosks. “If you do it locally, you’re in control,” says Rahim Madhavji, president at Knightsbridge Foreign Exchange Inc. “The benefit of doing it here is you can calculate, you can take your time. You can walk away if you’re not happy. You don’t want to spend your vacation time worrying about whether you’re getting the best rate or not.”

But I get that you also don’t want to walking around with a briefcase of cash or wads of bills stashed in your undies. When you’re on the ground and need cash, one of your best bets is using ATMs. They will charge you a 2.5% foreign transaction fee on the converted amount.

Now the machine may charge you a fee of say $2 and then your bank will charge you a cash advance fee of $3 to $5. This can add up. So to lower your costs, try to withdraw large amounts less often. You’ll also want to find out what your daily withdrawal limit is and take into account the currency conversion. Call your bank to adjust it temporarily if you need.

Some banks will waive that $3 to $5 if you use one of their bank machines or an ATM at an affiliated bank. Scotiabank, for example, is part of an alliance with Barclays in the UK and Bank of America in the US. RBC customers can use their debit cards at PNC Bank ATMs.

If you’re going to be traveling for a long time, see if your bank has an account package that waives ATM transaction fees while abroad. My bank, for example, will let me switch to a $30 plan for a month or more and then switch back to the basic plan.

Is it generally safe to use ATMs while traveling?
Look for ATMs with the Interac or Plus symbol. Any machine that displays those symbols should be able to process your transaction.

But use your bank card with caution. Try to use ATMs during business hours, inside a bank or large commercial building. Security cameras will deter crime and if there’s a problem, you can go inside and ask for help. When my husband and I were in Thailand, we used an ATM in the middle of nowhere and it ate his card. We freaked out but luckily, I still had mine.

Old terminals may not take Canadian debit cards. But you could in this case, try your credit card in the machine if you’re in need of money.

Also, outside of Canada, most ATMs only accept four-digit PIN codes so you’ll want to change yours before you leave the country if necessary.

So using your credit card for cash would be a good option?
Using your credit card to take out cash isn’t the best option. Credit card companies will add a foreign transaction fee on top of the exchange rate. It’s usually about 2.5%. But when you take a cash advance, you start paying interest on it immediately. And the interest could be 20, 21, 22%. Also, let’s not forget the ATM transaction fees that may apply.

You can use your credit card for purchases. It’s one of the best deals that you’re going to get when it comes to currency conversion and it’s mega convenient. Just make sure your card never leaves your sight. "With credit cards, you get an added sense of security" says travel expert Barry Choi. "Not only are you not carrying around a ton of cash, your zero liability insurance will protect you from any unauthorized charges.”

If you travel often, consider getting a credit card that does not charge that 2.5% foreign transaction fee such as the Marriott Premier Rewards Visa. The Rogers Platinum Mastercard still charges a 2.5% foreign transaction fee but offers 4% cash-back on all foreign purchases.

When I’m traveling, sometimes retailers will ask whether I want to be charged in Canadian dollars or their local currency. Always go with the local currency. You have no idea what their markup will be. It’s better to stick with your own bank’s fees.

Your financial institution may tell you that you don’t need to call to inform them of your travels. But for piece of mind, I still do call and ask them to put a note on my file, so I don’t experience any issues with my credit cards. Visa and MasterCard are more commonly accepted worldwide but if you can, I’d bring an extra credit card in case.

What if you lost your cards or have no money?
Before you leave, write down the emergency numbers listed on the back of your card and keep those numbers in a separate place. Call them immediately if you’re in a jam. I’ve heard of replacement credit cards being couriered to hotels or banks overnight.

If you’re really stuck, you can wire money to yourself or a family member. My bank charges a $13.50 fee to send money internationally and then there’s a cost to receive it.

Do people use travellers cheques anymore?
Many banks don’t issue them anymore because traveller cheques are not widely accepted internationally due to fraud. You can still get them (if you do, carry multiple cheques in smaller denominations, get them in the local currency or US funds and keep the receipts in a separate location) — but because it’s hard to cash them, you end up walking around with pieces of paper that are useless.

Banks have offered prepaid cash cards to replace traveller cheques. But these come with high fees and aren’t worth it.

Other tips to safeguard your money when traveling
Before you leave, make sure you have travel insurance. You never know when you’re going to be hospitalized for food poisoning. Check if your credit card offers any coverage before buying it.

Keep your money in different places so if it’s lost, you haven’t lost it all. For example, don’t keep the money in your checked baggage in case you make it to your destination but the bag doesn’t. Consider leaving your debit card locked in the hotel safe and carrying your credit card in your wallet.

Keep organized so that you’re not rifling through your purse for the right change. When I first visited Thailand several years ago, I posed for a photo with some street performers. I opened my money belt to tip them and all I saw were a flurry of hands grabbing all of the money from in my pants. Now I try to keep small bills handy. Make sure you always have a variety of different denominations; you don’t want to be flashing large bills around anyway, especially because the lady at the food cart may not have small change for you.

While you travel, save your ATM and transaction receipts. Keep your boarding pass to prove your return date. If you need to dispute a transaction, sending a copy of all of your documents will speed up the process. When you get home, keep an eye on your bank statements to make sure that you weren’t a victim of fraud and that you weren’t double charged for anything.

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