Traveling abroad is a fun, exciting experience where you can take in history, new cultures, exotic cuisine, and learn about the world.
Nevertheless, when you travel, you usually can’t use the U.S. dollar. Getting foreign currency can be easy, but you should be cautious of where you exchange your dollars, so you aren’t stuck with a bad exchange rate. It's good to know the best place to exchange currency so you don't end up in the worst place.
How Foreign Currency Exchange Works
Foreign exchange rates are always fluctuating because the global economy is active 24 hours per day. As economies strengthen and weaken, currencies experience inflation and deflation, and trade deficits grow and shrink, the relative value between currencies moves up and down.
- Currency exchange shops and kiosks in airports are not the best places to exchange money.
- For the best rates, try a local bank or a bank ATM to make your currency exchanges.
- Check to see if your U.S. bank offers foreign ATM fee refunds for using a foreign ATM.
- Not all currency exchanges charge the same rate.
- Tourists can get ripped off by some businesses, so it is advisable to shop around for a reasonable rate.
Financial institutions, investors, and speculators are constantly buying and selling large lots of currencies, which creates the current market exchange rate between two currencies. In general, currency exchange rates are quoted against the U.S. dollar, pound sterling, euro, and Swiss franc as those are the most stable and widely used currencies for large business transactions.
When you travel abroad and want to buy something in the local currency, you typically exchange a relatively small amount of currency and pay a higher exchange rate so the currency exchange can earn a small profit.
Not all currency exchanges charge the same rate, and some businesses take advantage of needy travelers in areas flush with tourists to turn a profit.
Where to Get the Worst Rate: The Airport
The first place nearly all travelers arrive in a new country is the airport terminal, and that is the first place where you will have an opportunity to exchange currency. The airport currency exchange rate isn't always the best. Why? Because airport-based currency exchange shops know that you might need local currency to catch a bus, train, or taxi, so they make big profits offering you the worst exchange rate.
Avoid these currency exchanges if possible by getting currency in advance from a local bank or going to an in-airport bank or ATM.
Many credit cards do not charge an extra foreign exchange fee, and you will get your bank’s rate if you use your credit card for a purchase.
Where to Get Bad Rates: Currency Exchange Stores
Once you get out of the airport, you may find yourself in a market, bazaar or popular tourist area. Exchange shops try to operate where you will need them and take advantage of tourists to make a profit. You will probably find better rates than the airport at a dedicated currency exchange. However, even though the rates are better, you’re still likely to get a bad deal.
Where to Get Good Rates: ATMs and Local Banks
The best place to exchange money is a local ATM or a bank. Many foreign banks are happy to exchange your dollars for local currency for a better rate than you find elsewhere, or you can go to an ATM to skip the line.
Many U.S. banks offer foreign ATM fee refunds and charges no fees for using a foreign ATM, so if you need cash you just whip out your debit card, find the closest bank ATM—not an ATM kiosk in a mall or supermarket—and rest easy knowing you received the best rate for your dollars.
The Bottom Line
If you keep your eyes open, most major cities have banks all over the central business district, bustling neighborhoods, and even in the airport. Even if you have to pay a small ATM fee, you can easily make up for the bad exchange rate you’ll find at the airport or a currency exchange store if you get enough cash.
If you follow that plan, you can enjoy your travels and focus on the fun parts rather than stressing about getting ripped off on currency exchange.