What is the best way to exchange money? That’s easily the question I get asked the most these days. Maybe it’s because finding deals on flights and hotels is a little easier these days but it’s more likely that people are just more aware of how exchange rates affect us.
Years ago, the Canadian dollar was on par with the U.S. dollar but now the exchange has devalued our dollars. What many people don’t realize is that the exchange rate you see on xe.com is never the rate you’ll pay. Bank, currency exchange offices and ATMs add their own markup to make a profit. In addition, most credit cards add a fee of 2.5% on top of their rates for even more profit. Despite these additional fees, there are ways to reduce your currency exchange fees.
Avoid fees completely with credit cards
Although it’s not technically cash, using a credit card with no foreign exchange fees is the cheapest way to pay for things. Not every card waives the foreign transaction fee so if you don’t have one of the following cards, you’ll be charged an extra 2.5% whenever you make a purchase in a foreign currency.
Scotiabank Passport Visa Infinite Card
- $139 annual fee – first year free
- 20,000 Scene+ points welcome bonus
- 5X Scene+ points on travel for the first 3 months
- Earn 2 Scene+ points per $1 spent on grocery, dining, entertainment, and transit
- Earn 1 Scene+ point per $1 spent on all other purchases
- Priority Pass Membership + 6 passes per year
- No foreign transaction fees
The Scotiabank Passport Visa Infinite has an annual fee of $139, but you get a Priority Pass Membership and six free passes a year and a sign up bonus that’s usually worth $250 – $350 so there’s a lot of value with this card. I personally think it’s the best all-in-one travel card since it has no forex fees and you get a good earn rate. You earn Scene+ points with this card which can help you lower the cost of your travels. If you’re the type of person who doesn’t like to carry multiple credit cards, then this is the one for you.
Home Trust Preferred Visa Card
- No annual fee
- No foreign transaction fees
- 1% cash back on Canadian purchases
- Purchase protection
The Home Trust Preferred Visa is a pretty basic no-fee card since it only gives you 1% cash-back, but for some people, that’s all they’re looking for. That said, the 1% cash back only applies to purchases made in Canadian dollars. I used to use this card all the time while travelling, but I’ve switched to the Scotiabank Passport Visa Infinite since I like the additional benefits included.
Check out my post about Canadian credit cards without foreign transaction fees for an in-depth analysis of each card. If you’re looking for ways to earn points for free travel, then you’ll want to read my guide to the best travel credit cards in Canada.
One other thing about using credit cards when travelling. When given the choice, always choose to be charged in the local currency as opposed to your home currency. The reason for this is that merchants set their own rates which can be much higher than the rate Visa and MasterCard use when you pay in the local currency. This is known as dynamic currency conversion and is a common practice in many parts of the world.
Exchange options when you need cash
Although credit cards are widely accepted around the world, there are still many merchants and countries that prefer to do business with cash. There have been multiple trips I’ve taken where I’ve ended up using cash more than credit. This wasn’t by choice, it’s just how the local economy works. Since exchanging money also comes with fees, you’ll want to consider the following to lower your costs.
Wealthsimple Cash Card
- No annual fee
- $10 free when you sign up
- 1% cash back on all purchases
- No foreign transaction fees on purchases
- No foreign transaction fees on ATM Withdrawals
- CDIC insurance protection
The Wealthsimple Cash Card is your solution if you need cash in any destination. This prepaid credit card doesn’t charge foreign exchange fees on ATM withdrawals or foreign transactions. That said, the ATM may charge a one-time user fee of around $3. Even when you factor that fee in, the Wealthsimple Cash Card is the cheapest way to get cash while on the go. Plus, you get $10 for free when you sign up with my referral link.
Using local ATMs is one of the cheapest way to exchange money. Generally speaking, ATMs charge the spot rate plus about 2.5% -3.5%. This extra charge is known as a foreign transaction fee and can’t be avoided (check with your debit card provider for the exact fee). Your home bank and the specific machine you’re using may also charge you a one-time fee of up to $5 so that’s something to consider with your overall costs. The best way to exchange money while minimizing costs is to simply withdraw your daily limit or use an ATM that’s a partner with your bank.
Foreign exchange offices
This gets a bit tricky since every exchange office has different rates. Foreign exchange offices found in airports and malls usually don’t have good rates. Any “no-fee” exchange office also tends to have higher rates since they need to make a commission. Despite all of this, some exchange bureaus offer competitive rates. The key is to know what the exchange rates are so you can do the math to see if the rates are fair. If the premium is 2.5% or less then you’re getting a decent rate.
This may come as a surprise but exchanging money at any of the big banks in Canada is usually not a good idea. Unless you’re getting USD, banks charge a pretty premium when exchanging money. Their overall rates really aren’t that good and often you’ll need to order the currency in advance.
For a more detailed look at the above and why travellers cheques are pretty much useless these days, check out my post about the best foreign exchange options for travellers.
When to exchange money for travel
When to exchange money is a question that’s asked by many travellers but it’s a game best not played since you’re essentially trying to time the market. The reason it’s become a bigger issue as of late is because of Brexit. Once the vote was confirmed to separate, the British Pound dropped 10% overnight. Let’s be clear, such shifts in the value of currencies are quite rare. If you were planning to travel to England soon, this worked in your favour but in general, you shouldn’t try to time the market.
If you still insist on trying to get the best rate on cash but you don’t know when to exchange money, I suggest dollar cost averaging. That means you would purchase a set amount of cash a few times leading up to your trip. So let’s say you exchanged $1000 worth of cash 3 different times at the rate you got each time was .90, .85, .95. In this example, your average cost would end up being .90. You didn’t buy at the lowest rate nor did you buy at its peak – you paid the average.
The problem with this strategy is that you’re exchanging money in advance at home where rates aren’t very good. As you’ve read, the best way to exchange money is a combination of using credit cards and local ATMs so why bother trying to time the markets?
Check out other parts of the series below
Part 1: Budgeting for a trip
Part 2: How to pick a vacation destination
Part 3: How to find cheap flights
Part 4: How to save money on hotels
Part 5: How to eat cheap when travelling
Part 6: The best way to exchange money
Part 7: The basics of travel insurance
Part 8: Sticking to your travel budget