How to pay less for foreign currency

In preparing for a trip to the United Kingdom, I’ve been exploring the ways of currency exchanges and hunting for the best foreign currency deals available to a small-time player like me. It’s been all the more interesting because I’ve been dealing with the pound, which has been sliding in value in the wake of Britain’s vote to leave the EU.

I’ve discovered that it’s definitely worthwhile to shop around, and that there are all sorts of fees to inflate what you ultimately pay.

Here’s a digest of my main conclusions, with the objective of getting enough foreign money for a modest holiday, as opposed to a multi-million dollar deal.

Check rates at the Bank of Canada website. Add 4%. That will put you in the ballpark for the best consumer rate you’re likely to find for buying foreign cash. You can look up current rates plus rates going back weeks, months and years.
Bank of Canada's daily converter
Bank of Canada's historic currency rates

Shop around. There can be wide gaps offered rates. For example, this past weekend, the British pound was as low as $1.82 at one place and as high as $1.89 at another. Check the websites of banks, credit unions and currency exchange shops.

Exchange rates are constantly changing. It’s tough to predict what will happen to a currency. If you’re buying a foreign currency for a holiday, you could buy a little every week in the run-up to your departure to average things out. Or, be like me, monitor for a while, and just take the plunge when the whim hits, hoping that you’ve bought on a low-cost day.

Buying currency at home in Canada at a financial institution will probably yield the best deal, at least for major currencies such as the Euro, U.S. dollar, British pound, Japanese yen and Chinese renminbi. (Though I’ve read dissenting opinion about this.) For low-demand currencies, you may need to order days or weeks in advance. Some financial institutions will charge you a fee on top of the profit that they're making on the exchange rate.

But you might not want to carry around great sums because of the bulk and the risk of theft. In that case, buy enough foreign cash to get you rolling for the first few hours or days after arriving, and then use your bank card to withdraw cash from bank machines. That’s the advice from travel expert Rick Steves. Those machines can be costly — you pay for the convenience. There’s at least a $3 to $5 fee for each withdrawal, though you might have a bank account that waives the charge. If there’s a fee for each use of a cash machine, withdraw large sums, and do it infrequently. A wrinkle in this process: the exchange rate will probably be a mystery; you won't know until you check your statement.

Steves’ advice is to stick with bank cash machines that are physically located at banks, and to use them during banking hours so that if something goes wrong, you can go inside and ask for help. Don’t use non-bank, “independent” machines, which are apt to charge you higher fees. A colleague says she was hit with a $15 fee for a withdrawal from a machine in a grocery store in Mexico.

With some bank accounts, where you pay a monthly fee like $30 or maintain a high balance like $5,000-plus, the machine fee may be waived. Scotiabank advertises its membership in the Global ATM Alliance; using a properly configured Scotiabank card, you can withdraw money from an Alliance machine in a foreign country without being charged a machine usage fee. But, there’ll be a currency exchange fee.

Whenever possible, pay with a credit card, preferably one that doesn’t assess a foreign transaction fee on top of an exchange rate that has already been boosted by a 4%-plus markup. Most credit cards in Canada charge at least a 2.5% fee for foreign transactions. This is spelled out in the card agreement, but might not be shown on your statement. I’m aware of two cards that don’t charge the fee — Chase Amazon Visa and Chase Marriott Rewards Visa. In a Google search, I also found Rogers Platinum MasterCard. Tangerine MasterCard charges 1.5%. (A warning: when using a credit card in a foreign country, try to stop the merchant from converting into Canadian currency for you; it will almost certainly be at an inflated rate. I discovered this scam at a restaurant in Leeds, England where my credit card was charged in Canadian dollars, rather than in pounds. I didn’t notice until I left. Sloppy me.)

You can check here for the rate Visa is charging before your bank adds its fee.

You’re sure to encounter places that don’t accept credit cards, or that assess a surcharge if you use one. So, having cash is pretty much a necessity.

A debit card, typically the same card that you use at a cash machine, is an option instead of a credit card. But I’m paranoid about debit cards because they give a merchant direct access to my bank account, so I never go that route. If you’re not a worry-wart about debit cards: Some banks say they won’t charge a transaction fee if you use a debit card to buy from a merchant in a foreign country. Check with your bank, since the situation can be different depending on the type of account you have.

Some more random observations, expanding on the stuff above:

The conversion rate that you see in financial tables, flashing on the TV screen or when you do a Google search, bears little resemblance to what you’ll end up paying. That rate is what the big players, such as banks and credit card companies, are paying.

Over the weekend, the Bank of Canada showed an exchange rate of $1.7657 for a pound, accompanied by a standing notice that financial institutions will mark up the amount being converted by at least 4%.

The lowest consumer rate that I could find on the weekend was $1.8145 on the TD website, but that was for “foreign exchange transactions,” not for getting a stack of currency. For cash, I was quoted $1.8465. (Bank customers with certain account packages or certain credit cards may be offered rates that are slightly better than what’s posted — ask.)

At Calforex online, it was $1.8414, plus a shipping fee that wasn’t disclosed. At its downtown Victoria storefront, the rate was $1.8858.

That’s just a snapshot of what happened this weekend. TD doesn’t always have the lowest rate, and Calforex doesn’t always have the highest, I’ve found during a month of monitoring. Rates bounce around a lot. But they do, at least in normal times, tend to stay roughly the same within a day.

A Wednesday, June 29 morning update:
— Conversion rate at Bank of Canada website for a British pound: $1.7399
— Non-cash transaction rate posted at TD Bank website: $1.7982 (this isn’t explained, but appears to mean electronic transfers)
— Rate for buying British pound notes at TD Bank: $1.8065
— Rate for buying British pound notes at Calforex online: $1.7962, plus shipping fee
— Visa credit card rate, with no bank transaction fee: $1.748447
— Visa credit card rate with the 2.5% transaction fee that most credit cards charge: $1.792158

Timing plays a big role. A British pound cost around a $1.90 just before the remain or leave vote on June 23. The next day, some places were offering $1.82 to $1.84. Stuff happens, a currency’s value changes. With the pound, amid the Brexit excitement, it’s changing a lot.

Travellers who are more worldly than me say they carry American dollars to exchange when they visit countries outside the economic mainstream. They'll seek out a local bank or money changer because there is no convenient way to obtain the currency outside the country. American dollars are much more widely accepted in foreign lands than Canadian, but you knew that already from reading spy novels.

I’m exploring other ways to convert Canadian money to British pounds.

While still in Canada, buy Marks and Spencer electronic gift cards denominated in pounds, paying with a no-transaction-fee credit card. Their stores are everywhere, including train stations and airports. Use the gift card to buy small items, such as drinks and snacks, or an umbrella. I'll give the gift cards to relatives who don't have a no-transaction-fee credit card. I’ll aim to lock in at what I hope will be a low rate.

Maybe also go online and buy a train travel voucher denominated in pounds to lock in a low rate.

This rate-locking stuff, of course, is gambling. I have no idea if the pound will drop further or rise tomorrow.

Consider sending money to relatives who live in the U.K. (or your foreign country of choice) to avoid carrying large amounts of cash while travelling. But doing this can be expensive. For wiring money, there’s a fee for the sender and often a fee for the receiver. RBC has one of lowest fees I’ve seen for small transactions — $13.50 to transfer up to $2,500; other places charge two to three times as much. The person receiving the money might have to pay the equivalent of $10 to $15. So, a $500 transfer suddenly becomes $470.

There’s also the option of a service like Visa Direct, which sends money to a bank debit card, a Visa credit card (the balance is paid down) or a prepaid Visa card (not recommended because there are additional fees). Through TD Bank, it’s $8.95 to transfer up to $1,000 and $12.95 for $1,000.01 to $2,500.

Avoid money-transfer fees by making a pact with a relative in the foreign country you are visiting. The relative needs to embrace penny-pinching. Using a no-transaction-fee credit card, buy no-fee gift cards for favourite stores to give to them. They give you the cash equivalent. Read the fine print for the gift cards to make sure they don’t expire.

And, to finish, some grumbling: Before Western Union bought it, Victoria’s Custom House offered money transfers with no or very low fees, like $2.50. Custom House exchange rates were also very competitive. But those days are gone.

[June 30 update: A reader reports good experiences with using International Currency Exchange, via its Click and Collect service, where you order currency online, then pick it up from one of its stores or airport booths. When buying this way, he's found the rates to be lower than what people who walk up are charged. I checked the ICE website and many of the rates look decent. But I was surprised when I couldn't find the British pound listed. So I phoned the ICE customer service number. An agent told me that there has been heavy demand for the pound ever since its value started to slide in the wake of the June 23 vote. They had run out, and didn't expect another shipment until next week.]

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