Traveling abroad frequently can be very costly, especially when you have to deal with multiple currencies each time you travel. Since you can’t use your home currency to pay for services in foreign countries, you’ll have to exchange your money.
In many cases, travelers would prefer exchanging their money in banks, unaware of the high markup fees that banks charge, making their travel costs even more expensive. In this guide, we’ll look at how to avoid the banks’ currency exchange fee payments.
Currency Exchange Fee in Banks
Known to charge one of the highest currency exchange fees, banks are generally not the best places to exchange your money. They tend to charge high markup fees of 2.5% – 3.0%, rendering them more expensive.
Meanwhile, you can find currency exchange companies that charge low markup fees of around 0.1% – 0.5%. An excellent example of such companies is Knightsbridge FX that also provides CAD to USD currency exchange services.
Here are some of the reasons why most banks charge high currency exchange fees.
- Many Overhead Costs: Generally, banks charge high currency exchange fees. But why should they charge different exchange rates? It’s because banks tend to inflate their exchange prices based on their costs of operation.
Banks usually hire thousands of employees and rent high-cost buildings that attribute to high operational costs. To raise enough money to pay for the expenses, they pass part of it to clients in the form of high foreign exchange fees.
- Hidden Currency Exchange Fees: It’s not easy for banks to reveal the costs included in the currency exchange fees they offer. You’ll only see the amount of money received for exchanging a particular amount of money.
Since banks mostly disclose the exchange rates they offer and not a breakdown of the fees they charge, the chances are high that you are paying more than what you should. The hidden fees make banks more expensive.
- Vast Range of Services: Banks deal with a wide range of financial services, like savings, mortgages, insurance, personal loans, business loans. Banks don’t rely entirely on currency exchange, and that’s why they don’t offer competitive prices.
Besides, if the banks experience losses in some of their services, such as many loan defaults, they will try to spread it across other services, including currency exchange. So, you end up unknowingly paying fees for losses you didn’t cause.
How to Avoid Currency Exchange Fees at Banks
Avoiding the high currency fees that most banks charge can help you save thousands of dollars from your money exchange. Here are some of the strategies to help you avoid high exchange rates in banks.
1. Determine the Mid-Market Rate
The mid-market rate (also called the inter-bank rate) is the midpoint between the supply and demand of foreign currency. It can help you predetermine the exchange rates to expect in the foreign exchange market and also to select the best deals.
Banks may not offer the exact currency exchange rate you see on Google or Reuters as the mid-market rate. They usually add a margin on top of the inter-bank rate to cover their costs. You can select an exchange rate that is closest to the mid-market rate.
2. Exchange Your Money in a Foreign Exchange Company
While all banks offer a vast range of services, you can find companies that specialize in foreign exchange services. Specialized foreign exchange providers tend to charge low currency exchange fees due to the following reasons:
- They have a few overhead costs, attributing to low costs of operation
- They operate online to reduce their operational costs
- They order foreign currencies in bulk allowing them to get huge discounts
Some companies that specialize in foreign currency exchange offer free international money transfers, making them a better alternative to banks.
3. Avoid Using a Foreign Bank ATM
If you resolve to exchange your money in an ATM, you shouldn’t do it in a foreign bank ATM. Otherwise, you’ll have to pay the transaction fees twice, making your conversion more expensive. You’ll pay a currency conversion fee and a foreign transaction fee.
4. Tell Your Bank That You’re Traveling
Before traveling abroad, you need to notify your bank about your international trip. That can be helpful in two ways.
- When you notify your bank in advance, it gives them enough time to get you the foreign currency you need
- When you transact in a foreign country without informing your bank, it may assume the transaction as fraud
5. Avoid Banks Completely
The best way to avoid currency exchange fees at banks is by avoiding the banks. You don’t have to exchange your money in a bank that charges a markup fee of 3% when you can find a currency exchange company that charges a fee of 0.5%.
If you are searching for the best exchange rates with minimal fee charges, you should consider exchanging your money in a specialized foreign exchange company. Most banks inflate their currency exchange fee charges depending on their operation costs, rendering them costly.