7 April 2009

In the mad rush of preparing for a trip abroad one of the best hidden and often least considered expense is the cost of exchanging your currency or accessing money from home. In this article I am going to show you how to make this expense as painless as possible. Please note that at the present time many of the suggestions I offer here may relate specifically to UK residents and financial institutions, but where possible I have given similar deals available in the USA.

There are generally two costs to consider when exchanging currency, Fees and exchange rate 'loading'.

• Fees: Some providers will charge any number of small transaction charges in the form of flat or sometimes sliding fees or percentage commissions. These will normally be stated up front. If you are making an exchange of £500 to £1000 a flat fee of £7 to £10 may be of little consequence but if your exchange is only £100 it becomes a large chunk out of your pocket!
• Exchange Rate loading: This is the hidden fee that can really cost you. Be careful of companies who claim to charge no transaction fee or are "commission free" but then 'load' the exchange rate by altering the rate to make up for their lost commission. The bottom line is simple: you get less for your pound/dollar/euro. If the rate is not stated up front, or if the provider won't state the actual rate, it is very likely 'loaded'.

The least desirable way to exchange currency, and obviously your very last choice is the Airport currency exchange counter. Because of the very high transaction fees charged and a heavily 'loaded' exchange rate, exchanging your currency at the Airport is always the most expensive way to get your travel funds. This is especially true if you only want to exchange £100, in which case it could cost you nearly 15%. . If you get to the airport and suddenly realise that you haven't exchanged any currency yet, don't panic, there are other better alternatives.

The second most expensive exchange rate is what you'll get if you make an exchange of say, £100 or £200 on the high street (e.g. travel agent). These providers will only give their premium rate if you are exchanging an amount that is over a minimum which usually ranges between £500 and £1000. If you are planning to exchange an amount that large you might get a reasonable deal, but do you really want to be carrying that much cash?

The Post Office advertises commission free currency exchange but be careful to check what rate they are offering. A recent check of their site indicated that they were giving $1.42 to the pound, but a check at xe.com showed that the current market rate was $1.48 to the pound. That works out to a load of over 4%, which isn't the worst you can do, but you can do better. What is annoying to me is that the Post Office doesn't tell you that the rate they quote online is only given if you exchange more than £400 or £500. Exchanges under this amount pay an additional load or commission. Surprisingly the Post Office actually gives a better rate when you purchase their Post Office Travel Money Card (details below).

Credit and debit cards are accepted nearly everywhere making accessing your money simple and convenient - but not always cheap. In fact, using the wrong card can be very costly. Here's why: most issuers of credit cards add a 3% 'load' on top of the current market exchange rate and will usually also charge you a foreign transaction fee for giving you the priviledge of accessing your money abroad. For example, when I recently used my Bank of America Visa check card in France the bank added $5.00 per transaction! And if you make a cash withdrawal most credit cards issuers will charge up to 3% and also charge you interest from the day of the transaction. As if all these fees aren't enough grief for most travellers, many foreign sellers now add a credit card transaction fee of up to 4% to your purchase (this is very common in the UK but not legal in the USA).If you are not very careful every foreign transaction you make could cost you you up to 10% or more!

Fortunately there are a few credit/debit card providers who either charge no fees or only a nominal fee when you use their debit or cash. For UK residents the best deal by far for getting cash in hand when abroad is Nationwide. With the Nationwide Cash Card Account you can withdraw cash with no fee for the currency exchange, no foreign transaction fee, and you will always be given the current market rate with no 'loading'. And, Nationwide has partners in most EU countries which allow access to cash machines at no cost. It really doesn't get any better than this!

Keep in mind that the Nationwide Cash Card Account is only good for use in cash machines for withdrawing cash directly from your account. But, you can get the same great deal from the Nationwide Visa debit card which you can use for purchases within the Visa Europe Region.Purchases made outside the Visa Europe Region will be charged a nominal fee of between .86% and 1% on every purchase, but this is a very small price to pay for the convenience of being able to use the card virtually anywhere and getting wholesale exchange rates.

If selected carefully, Specialist Credit Cards can be a very good option when abroad. At the time of this writing the best specialist credit cards I found are the Post Office card and the Saga card, both which offer wholesale exchange rate on purchases made abroad with no additional fees (other than the 1% fee which may be applicable in some countries). However, unlike Nationwide debit card which charges no fee for cash withdrawals, withdrawals on the Saga Card will incur a 2% charge whether made abroad or in the UK while advances using the Post Office card are charged 2.5%.

In addition to it's credit card the Post Office also offers a pre-loaded money card called the Post Office Travel Card. You can order the Travel Card online and load it with euros, dollars or sterling and the Post office claims to give their best exchange rate (at the time I checked the rate was about 2.75% which is good). There is no fee to make purchases, providing the purchase is in the same currency as the card load. Withdrawals will incur a 1.5% to 2% fee making using this card for purchases a better bet. Since it is a debit card it should not incur any fees added on by the seller. You can even top this card up by phone. As with all debit and credit cards, be sure to read all the fine print regarding fees

The FairFX Travel Money card is a UK provider of a pre-paid card which claims to be able to save you up to 10% on fees and rates. Always a bit of a skeptic I went to their site to see for myself and was genuinely surprised to find that they load their exchage rate by only 1.5% (rates can change so check for yourself before purchasing) and charge no fees on purchases or withdrawals providing the transaction is in the same currency as the card. When you buy the FairFX card you load it with either US dollars or Euros. There is a £9.95 fee to apply for this card but this fee is waived if your initial load is at least £500.

Among the best offers for US travellers or with loved ones abroad is the HSBC Easy Send Account. By opening a regular checking account account (subject to fees unless a minimum of $5,000 is maintained) you or a recipient can then open an Easy Send account in another country. That account holder will be issued one ATM (cash machine) card which can be used for cash withdrawals. Withdrawals are free of transaction fees if made at any one of the HSBC cash machines world wide but withdrawals made in currency other than U.S. Dollars are subject to a currency conversion rate.

If you are a PayPal user you should certainly consider PayPal for managing and accessing money when you are abroad. US residents may apply for either a PayPal Mastercard debit or credit card, but at present only a pre-paid debit card, the PayPal Topup Card, is available to UK and EU residents. The Topup Card is a great idea for travelling students because they can use it for purchases and cash withdrawals almost anywhere. Top-ups cost just £1 per load and since it is a UK/EU based debit card it will not be subject to sellers adding an extra fee to puchseses.

For US residents the PayPal Mastercard credit card operates like any other credit card while the debit card is just like a bank debit card in that it can only be used to make purchases or cash withdrawals against an existing PayPal balance created either through online payments received (great if you are an online merchant) or through transfers from your bank account which are free. Using the US PayPal credit/debit cards for foreign transactions and witdrawals will cost you about 2.5% but keep in mind that when you are abroad the seller may tack on an extra 2% to 4% to the purchase to cover his costs. You can avoid this extra cost by taking enough cash out at your local cash machine, but of course, the cash machine provider will charge you a few bucks for using the machine, so take out enough for a few days.

Send Money via PayPal: PayPal account holders can also send money from one PayPal balance to another PayPal account holder free of charge (money sent through PayPal using a credit or debit card will incure moderate fees). Be aware that transfers to PayPal can take about four days in the USA and a week or more in the UK and EU, so some advance planning is required to ensure you have funds available when you need them

Fees-free to anyone with a Citibank account (UK) If you anticipate having an ongoing need to be able to transfer money from one bank to another bank abroad the best option I have come across is to set up a fees-free Citibank Access Account (UK) and have the recipient set up a Citibank account in their country. With the Citibank Access Account you can transfer funds to another Citibank account with no fee. If you are in the USA Citibank offers a global transfer service but it is only free to a limited number of countries (a small fee of $8.00 or $10.00 applies to others).

Fees-free to your foreign account: a number of UK banks offer free transfers to your bank accounts in another country. The best to check into are. Halifax, Bank of Scotland, Lloyds TSB and Barclays.

Fees-free for US residents: US banking rules and processes are vastly different than in most of the rest of the world making it a real challange to find an efficient and low cost way to transfer funds from a US bank to a foreign bank without considerable fees. I recomend that US residents check out HSBC and the HSBC Easy Send Account which allows you to open as many no fee Easy Send accounts as you like and make free transfers. Each Easy Send account will be issued one ATM(cash machine) card for an authorized user which can be used for withdrawals. Withdrawals are free of transaction fees if made at any one of the HSBC cash machines world wide. Withdrawals made in currencies other than U.S. Dollars are subject to a modest currency conversion rate.

Money transfers are always a costly way of sending money, but there are times when it can't be avoided like when a traveller's cash or cards are lost or stolen. When cash is needed quickly your only option may be a money transfer from home. It may be be costly but it is fast and effective and free to the receiving party.

The two big players in the money transfer game are Western Union and MoneyGram Of the two, MoneyGram is considerably less expensive, though still certainly not cheap. Transfers can be made online and cost about $12.00 per transaction but in addition to this fee they 'load' the exchange rate by at least 2.75%. Still, it is an instant transfer and the recipient pays no fees. Western Union charges $14.00 per transaction and loads the exchange rate by at least 4%.

There are a number of online money transfer companies who offer much cheaper rates but as internet money transfer firms are not properly regulated I won't recommend any at this time.

My suggestions in this article are based on my most recent research as of today, 7 April 2009. If you don't already know it, you should be aware that exchange rates are volatile and credit/debit card terms can be amazingly fickle and fees change frequently. Always remember to do your own comparison shopping before signing up!