Anton Slegers

Apr 13, 2020

10 min read

3 Ways How You Can Convert Foreign Currencies Cheaper Than Your Bank

Flights? Check! Visa documents? Check! Suitcase packed? Double check! Foreign currency? … Eh? How are you going to pay for stuff in the country you will be visiting? If you think your local bank card or credit card is the best way to pay at restaurants and hotels, you might want to continue reading to find out the truth.

Singapore, one of the world’s advanced financial hubs. (Photo: Anton Slegers)

You have probably traveled quite a bit in your life already and you know your ins and outs of getting money from an ATM abroad. You might even already know about the conversion trick banks use right before you get money out of the ATM (more on this later) — but in this article I will explain you that banks are still making a lot of money from your spending habits abroad. I will go over the ways how they make money of you, and then explain you better ways of spending the same money for the same things while keeping more of your hard-earned money for fun stuff during your trip.

Disclaimer: Your situation might be different than mine. All banks have different rates and fees. In this article I’m writing from the perspective as a Belgian traveling outside of Europe.

❌ Using your bank debit or credit card while making payments

Pitfall 1: My Belgian bank belongs to the top 3 of the country and charges a fixed percentage per card transaction that is in a different currency. It ranges from 2% to 4,5% when I use my Maestro debit card. When I use my MasterCard credit card it’s easier to remember because it’s always 1,6%.

Real life example: In India there’s an amazing app that lets you book a place on a sleeper bus. I chose to get charged in Indian rupees using my credit card because it was the easiest payment method.

The rate that day was 1 EUR = 81,1752 INR but I only got 1 EUR = 79,8969 INR offered by my bank.

The bank is hiding the percentage fee by giving you a lower exchange rate.

If these percentages seem nothing to you, trust me, let’s say you’re on a big trip in Asia where you spend €3000 over the span of 3 months with a credit card like mine, you threw €48 away that could have been beers and cocktails during sunsets on the beach or on a fancy rooftop bar, or 100 tasty meals in India 😊 .

❌ Exchange your cash at an exchange office

Pitfall 2: This is actually not a bad one! You take your own local currency with you when you travel, and you exchange it in the country you’re in. Why would you do this? To avoid the fees your own bank office asks when you want to exchange it back home. Everyone needs to earn a living so of course you won’t get the rate you find on the internet.

‘No commission’ signs basically scream that they have a high conversion rate that includes their commission.

I’m going to start off by saying that this can be a good way to do it, especially when you hold US dollars, British pounds or euros, you just need to be lucky.

Secondly, touristic places are notorious for the counting scams where they don’t give you the exact amount of bills you were supposed to be getting. Good luck if you don’t have video proof, you don’t speak the local language, or get intimidated. Who wants to get in trouble for a few bills, right 🤷 ?

My advice is to do this on your own risk and when you are experienced doing this. I only exchange cash for cash when I have leftover currency from a neighboring country I just left and couldn’t exchange it with someone in a hostel for a fair real exchange rate.

❌ Use your bank card to withdraw money from an ATM

Pitfall 3: As I already mentioned, when you use a foreign ATM, it sometimes asks you if you want to be charged in your own currency or in the local currency. Always choose ‘without conversion’, even when it seems logical to see how much money they will charge you. Long story short, they have no reason to keep you happy since you are not a customer and put extra fees on top.

Anyway, even when you know this trick, withdrawing money from an ATM abroad costs you money three times! First, you pay your own bank a fee to convert your own currency to the foreign currency. Secondly you pay the foreign bank a fee most of the time, normally a fixed fee around €5 no matter how much you withdraw. Finally, your bank probably doesn’t use the inter-bank rate but their own high rate.

Real life example: I used my MasterCard credit card and withdrew 20.000 Thai baht from an ATM. The bank in Thailand charged me 220 baht for the transaction and my Belgian bank charged me €5,76 on their end. That’s why I withdrew the maximum amount possible. To finish it off, the rate that day was 1 EUR = 35,6292 THB, but I only got 1 EUR = 35,0877. That’s a 1,5% difference.

20.000 baht at the inter-bank rate would have cost me €561,34, but they charged me €576,27 with their rate and the Thai bank’s fee, then add my own bank his €5,76 fee on top… Boom, €20,69 down the drain before you even spent the money! Could’ve been a night in a hotel with a pool 🏊‍♀️ .

✅ Using a neobank that does not have hidden fees

Solutions to overcome above pitfalls: A neobank is a type of bank that operates exclusively online without physical branch that you can visit. This obviously cuts out a lot of their costs because they don’t need to pay bills for buildings etc. and thus, making them cheaper than your traditional bank.

The most special thing they can do is allowing you to hold more than one currency in your account. Let’s say you converted your euros to Thai baht for a certain fee in the app, after doing this you spend Thai baht in Thailand from your bank account like you would when you use your card back home; you get charged what you spend. Do you run out of Thai baht in your account? Then they will deduct money from another balance. Do you owe someone money after splitting a check in the restaurant and they have the same neobank card as you? Send them the foreign money without any fees.

I have been using 3 different neobanks because they all have their own strengths and I was interested in learning about them. I will give information about each of them and finally compare them so you can make your decision which one is the best for you.

1. Revolut

This might be the most popular of the three. What makes Revolut stand out from the others is the intuitive app, the ability to put money in a vault, rounding up payments to make saving easier, depositing cryptocurrency, buying silver… The list goes on! Maybe too long as it can get a bit overwhelming when you dive into the app the first time.

(Photo: Anton Slegers)

You can hold different currencies on a Revolut card, meaning once you converted money to a certain currency through the app, and you pay in a restaurant for example, the money gets deducted from that balance like you would be using a local bank card.

A cool feature that only Revolut has is the option to own virtual credit cards. The app can create a card number and security number which is handy when you need to pay on a shady website or when a family member wants to use your card. After your bank details have been used, you can delete the virtual card and you don’t need to worry if your details are being kept or used by someone else.

Revolut uses the inter-bank rate to exchange your currencies, which is highly favourable.

ATM withdrawals abroad are free until €200 equivalent per month, after that they charge a 2% fee.

Something that Revolut hides is that there is a mark-up fee ranging from 0,5% to 1% in the weekend because the foreign exchange markets are closed. They also charge a 1% mark-up fee for Thai baht and Ukrainian Hryvnia. Avoid using your Revolut card during the weekends for this reason unless you hold the currency in your account of the country that you’re traveling in.
EDIT — As of 12 August 2020 the mark-up fee for major currencies changed from 0,5% to 1%.

Note: Revolut uses a fair use policy where you can only spend up to €6000 per month without an extra fee of 0,5%. As this article is pointed towards people trying to save money and probably don’t spend that much per month, I only include this for the sake of completeness.
EDIT — As of 12 August 2020 this changed to €1000 instead of €6000.

I don’t really like all the exceptions you need to keep in mind when using this card, but its features make up for it. If you like fiddling around, Revolut is for you.

2. N26

N26 is a German company and is rapidly growing. I really like the design of their card since it’s transparent. They also have a website that plays well with the smartphone app unlike Revolut that only has an app.

(Photo: Anton Slegers)

They use the MasterCard rates to exchange your currencies, which is around 0,25% worse than the inter-bank rate. Don’t break your head around comparing inter-bank and MasterCard rates too much.

Again, watch out for the small letters. N26 tricked me by saying ATM withdrawals are free 5 times per month. Little did I know I was reading a blog post under the European category. So, only withdrawing euros is for free, any other currency you pay a 1,7% fee. Avoid using N26 to withdraw money from an ATM outside of Europe. This is my go-to card to spend money online or pay by card in venues because it never has been declined so far. I also don’t need to worry about which day of the week it is or which currency I’m spending unlike Revolut.

One drawback of N26 is that you can’t really hold other currencies than euro. It might take away your peace of mind if you like to store different currencies in your account and convert as you like, or receiving payments in different currencies might get declined.

If you like something straightforward without bells and whistles, N26 might be for you!

3. Wise (formerly TransferWise)

EDIT — On 24 Feb 2021 TransferWise changed its name to Wise.

This is my favorite card of all three because of their transparency. They have a good reputation and the app offers a good range of features in the middle of N26 and Revolut. Also, the fees you pay are right in front of you before you convert or send money from the app or website. ATM Withdrawals are free until £200 equivalent per month.

(Photo: Anton Slegers)

Just like Revolut, you can hold different currencies on this card.

Wise is the best option to transfer large amounts of foreign currencies to your own home bank. This can be useful when you have been working in a foreign country and you want to bring your foreign money back home. They also have bank details for your Australian, American and Polish currencies, which can be useful if your foreign employer wants to deposit your salary. This is my primary card to deposit or send big amounts of money from and to foreign accounts. You know how much you are going to get charged, and you know how much the recipient will receive thanks to the calculator on their website. Wise is the card I would recommend to anyone because of its simplicity, good rates and transparency in fees.

Conclusion

I still think having a credit card card in your own country is a great idea as they can advise you on financial decisions, provide insurance, keep your savings safe, allow later payments at the end of the month without interest… But for traveling, you might want to check out these neobanks for your next trip!

1 Free means it doesn’t cost you a fee to withdraw or pay if you hold the currency in the app. Let’s say you pay a bill in Thailand and you have Thai baht in your account, you get charged for what you paid. If you only have euros on your card, but pay a bill in Thai baht, the neobank will exchange the currency (you pay a fee for that) and then it will be withdrawn from your account.

There are so many ways of using these cards, sending, receiving, converting, spending… that I can’t cover everything in this article. As always, do your own research before converting money and checking if the rates and fees are fair.

After seeing all these numbers and percentages … Don’t forget to just have fun on your trip and try not to squeeze every penny out of every transaction 🏖️!

Referral

I wrote this article out of interest to figure out for myself what I really pay when traveling. You can support me by using the referral links below when ordering your card.

If you use the Revolut link, you don’t have to pay for shipping.
If you use the Wise link, you can do a money transfer up to £500 equivalent without fees.

· Revolut: https://revolut.com/referral/antonwgda
· N26: https://n26.com/r/antons1669
· Wise: https://transferwise.com/invite/a/antons538

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