Saving on cash exchanges

How to save

Location, location, location. It’s not just in real estate that this well-worn mantra holds true; it’s equally valid with currency exchange. There are some good spots (like well-researched currency exchange offices) and bad spots (airports and banks) to convert cash to foreign dollars. Take the following steps to confirm you’re getting the best deal possible:

  1. Check current exchange rates with an objective source, like the Bank of Canada, which has a handy currency converter that displays exchange rates for a variety of popular currencies.
  2. Compare those rates to your bank’s rates. Note: Some banks may post only their non-cash rate (what you’d get if you cashed a foreign cheque, etc.), which is usually a better deal than their cash rate. A bank’s website might not be so transparent about its cash exchange rates, so call the bank to get the most accurate numbers. Scotiabank confirmed to me that they charge some sort of fee to exchange currency—but that fee is included in the overall exchange rate they list, and they’re not forthcoming about the specific fee amount itself.
  3. Compare your bank’s rates to those offered by a professional currency exchange office (one in your town or an online service like popular Knightsbridge), taking into consideration any added fees that either the bank or currency exchange service might charge. I personally never exchange money at a bank—and certainly never at an airport—because I have always found that I can get as much as 1.5% to 5% more cash by going with a currency service.

Note: If you have excess cash after your trip, you can usually take it back to the exchange service (or the bank) to get it transferred back into Canadian dollars.

Pitfalls to avoid

  • Don’t execute the currency exchange at your bank due to its mere familiarity. Banks (especially the Big Five) might not offer the best currency exchange rates—even if you’re one of their accountholders.
  • Apply a critical eye to banks or currency exchange companies that claim to charge no additional fees or commissions. They might be merely folding hidden fees and commissions into their inflated exchange rates, cutting 2% or more off the money you would be getting in exchange for your Canadian dollars. This misleading practice of so called “no fee” and “no commission” currency exchange is also especially prevalent at airports or in stores in popular touristic areas.
  • Don’t wait until the last minute and resort to exchanging currency in airports or in highly touristic neighbourhoods. Vendors in these areas have a captive audience and little motivation to offer competitive rates.

Withdrawing cash at foreign ATMs

ATMs are relatively widespread and easy to find throughout the world today. There’s no hard and fast rule about how much money to withdraw at one time: To ensure you don’t take out too much (and risk losing it) or too little (and incur multiple ATM fees), carefully research your destination and get a sense of how widespread credit cards—your first choice of payment—are. If you’re travelling to rural regions in developing countries, you’ll likely need more cash than in an urban center.

ATM fees can eat away at your travel budget, because you may pay a foreign ATM fee in addition to the network access fee your bank back home will charge, which can be as much as $5. Be absolutely clear on what debit card fees you might incur abroad by speaking directly to your bank. For example, some credit unions belong to the EXCHANGE network of ATMs that may not charge a fee when travelling in the USA. Finally, if you do rely on your debit card to access cash, make as few withdrawals as possible. Running to a machine every time you need an extra $20 will quickly add up.

RBC’s ATM fees. Note the higher charge for international withdrawals.
Source: RBC

RBC’s ATM fees. Note the higher charge for international withdrawals.

Using credit cards for foreign purchases

While it’s necessary to carry at least some cash with you when you travel internationally, credit cards should remain your primary method of purchase. The currency exchange rate used by a card processor (i.e. Visa, Mastercard, or Amex) is typically very close to the exchange rate used by Bank of Canada, and far superior to the exchange rate you’ll get for cash at a bank or currency exchange office.

However, this advice about relying on a credit card as your primary method of purchase comes with one big caveat: In addition to the difference in currency value as set by your card processor, your card issuer (e.g. RBC, TD, BMO, etc.) is likely charging you an additional fee for all purchases made in a foreign currency.

Beware foreign transaction fees

Much of the savings you make by using your credit card as your primary source of travelling funds will be potentially nullified if you use a card that charges a foreign transaction fee. This fee (also referred to as an FX or Forex fee) is an irksome 2.5% to 3% additional charge that most credit cards add to any purchase made in a non-Canadian currency.

Having a no FX fee credit card is the golden rule when it comes to shopping abroad smartly and securely. Fortunately there’s a slowly growing array of credit cards in Canada that save you forex fees as a perk. My favourites at the moment are the Scotiabank Gold American Express® Card and the Scotiabank Passport® Visa Infinite* Card. Sure, you pay an annual fee with either, but not paying the foreign transaction fees will save frequent travellers a big bundle, plus the cards reap a lot of rewards points and come with other travel benefits, like travel insurance. I also like the Home Trust Preferred Visa as a more basic, no-annual fee option.

Beware ‘dynamic currency conversion’

Don’t be fooled by this term. Though having a purchase charged in Canadian rather than foreign currency may seem like a convenient way to avoid foreign transaction fees, the exchange rate offered for this service is almost always worse than the foreign transaction fee that a credit card will charge. Plus there can also be other undisclosed fees for using the service.

Using debit cards for foreign purchases

The reason debit cards aren’t as advisable a purchase method as credit cards for overseas travel is that the vast majority of Canadian debit cards charge a foreign transaction fee. And few if any debit cards come with the extensive travel benefits that a travel credit card will include, like rewards points, lounge access, travel insurance, etc. It’s a good idea to bring a debit card with you when you travel in the event that you need to withdraw cash from an ATM; but remember to always ask a foreign vendor if they’ll take a credit card before you reach for the cash.

Conditions Apply. Visit here for the Scotiabank Gold American Express® Card and here for the Scotiabank Passport Visa Infinite Card to learn more. *See Card Provider's website and Card Application for complete card details, terms and current offers. Reasonable efforts are made to maintain accuracy of information.

Sandra MacGregor Freelance Contributor

Sandra MacGregor has been writing about finance and travel for nearly a decade. Her work has appeared in a variety of publications like the New York Times, the UK Telegraph, the Washington Post, and the Toronto Star.

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