If you frequently travel or send cross-border payments, it’s important to know how to get the best exchange rate possible.
Exchange rates can vary significantly depending on market conditions and the money exchange service you choose. Fortunately, all it takes is a bit of research to find the best currency exchange rate. And a lower rate means better value for your money.
Let’s boost your hard-earned cash’s buying power abroad. Keep reading for tips to find the cheapest exchange rate.
What are exchange rates?
Ever wondered what exchange rates really are? Simply put, they’re the value of one currency in relation to another. It’s how much of your currency you need to exchange to get a certain amount of a foreign currency.
For example, let’s say the current US dollar (USD)-to-Mexican peso (MXN) exchange rate is 16.5 pesos for every dollar. If you live in the US and want to send your family 5,000 pesos, it would cost you about 303 USD.
These rates aren’t set in stone, though. They fluctuate regularly based on economic factors like inflation, interest rates, and global market conditions. One day, your currency might have more purchasing power abroad. The next day, it might have less.
Not only that, but rates can vary based on the specific bank or financial institution you use to exchange money.
Getting the best exchange rate is a combination of good timing and knowledge of the various currency exchange options. You’ll want to monitor changing economic conditions and seek the best bank exchange rate or online currency exchange rate.
Where’s the best place to exchange currency?
Unsure where to get the best exchange rate? Whether you’re traveling abroad or want to send money to your family back home, you have several options for converting money.
A good understanding of the pros and cons of each currency exchange option will help you know where to exchange currency and save on unnecessary costs. Let’s explore each one:
Banks and credit unions
Banks and credit unions typically offer the best rates and minimal fees, making them a great option for currency exchange. Plus, they’re regulated and follow stringent security standards. And if it’s your own bank, you can easily manage and track your transactions.
One potential downside is that banks aren’t always the most convenient. You typically have to go in person, and you may even have to visit a location that’s farther away to secure the best rate.
Additionally, banks and credit unions don’t always offer the widest variety of currencies. For less common currencies, you may need to visit a foreign exchange house or use an online platform.
Foreign exchange houses and airport kiosks
Common in airports and tourist areas, these non-bank currency exchange businesses are a quick and convenient option for travelers. However, they tend to have high exchange rates and fees. It’s best to plan ahead and exchange funds at a bank or via an online platform rather than getting stuck with higher rates at a foreign exchange house.
Online currency exchange
Online currency exchange and money transfer service providers, like Western Union, are easy to use and tend to have competitive and transparent rates. But keep in mind that rates can vary quite a bit depending on the provider. If you go with this option, shop around for the best money exchange rate.
Another plus of online currency exchange is that you can use it to convert currency and send funds abroad. Or you can have converted cash delivered to your home or another location.
Now that you know what exchange rates are and where to exchange money, let’s dive into how to get the best exchange rate. Here are eight tips to save on currency conversion costs:
1. Compare rates
Don’t just go with the first place you look. Check out several banks or credit unions, foreign exchange houses, and online currency exchange platforms to see which has the best rate.
As you compare rates, remember that it’s not just about the exchange rate. Keep an eye out for extra fees that’ll add to the total cost. Examples include transaction or commission fees (more on this later).
2. Use online tools
Many websites and apps, including the Western Union currency converter, provide real-time currency exchange rates.
By observing how rates fluctuate, you’ll gain insight into economic trends and feel more confident about how to get the best exchange rate. In particular, you’ll get a better sense of how to time your exchange and where to get the best exchange rate.
3. Check for fees
Currency exchange providers may charge a variety of additional fees, and these can significantly affect the overall cost of your transaction. Even if a money exchange service offers an attractive exchange rate, high fees can offset any potential savings.
The wording might vary across providers, but common tack-on charges include transaction, service, commission, delivery, wire transfer, and foreign transaction fees.
Be sure to ask for a detailed breakdown of fees before exchanging money. Reputable service providers are transparent about their fee structure. And online money exchanges typically post fees on their sites.
4. Consider online transfers
If you’re sending money to a foreign country, online money transfer services or peer-to-peer platforms can be great options. They often offer more competitive rates, especially for larger sums. Plus, they are convenient and can get funds into the recipient’s hands very quickly.
Before using an online money transfer service, make sure it’s credible and secure. While providers like Western Union are highly trusted, others aren’t as reputable. Research the company’s customer reviews, regulatory compliance practices, and security measures to get a feel for their legitimacy.
5. Be flexible with timing
If you can afford to be flexible, consider timing your currency exchange for when rates are most favorable. Track exchange rates and keep an eye on market trends so you can exchange your currency when the time is right.
Keep in mind that predicting rate changes is complex and waiting for the perfect rate can be risky. It’s often best to act when rates are good rather than holding out for an ideal rate that may never come.
6. Use credit cards with no foreign transaction fees
Consider using a credit card to make purchases abroad. Credit cards often have better exchange rates than foreign exchange houses. And with a credit card, you won’t have to exchange and hold on to physical cash.
If you go this route, you’ll want to use a credit card that doesn’t charge foreign transaction fees. Before traveling or making foreign purchases, check with your credit card issuer about its foreign transaction fee policies. And be sure to research any other charges that might apply when using the card abroad, such as cash advance fees.
7. Withdraw local currency from ATMs
Withdrawing local currency from ATMs at your destination can be cost-effective. It’s an option that might make sense for long trips abroad.
However, look out for any fees associated with foreign ATM withdrawals. Check your bank’s policies and see if it partners with any international ATMs, as this can reduce costs. It’s also generally best to avoid using ATMs in high-fee areas like airports.
8. Stay informed on current events
Major events in the world can lead to big fluctuations in exchange rates. Consider following or subscribing to financial news sources to stay in the loop on events that impact exchange rates.
How can I calculate the exchange rate?
Knowing how to calculate exchange rates and convert currencies is an important skill. And it’s actually quite simple. Here’s how:
- To determine the exchange rate: Divide the original currency by the new currency. For example, if you exchange 100 USD and receive 1,650 MXN, divide 100 by 1,650 and you’ll get an exchange rate of 16.5.
- To convert a currency: First, find the exchange rate. Then, multiply your current currency by the exchange rate. Using the same example as above, you would multiply 100 USD by an exchange rate of 16.5 to get a converted amount of 1,650 MXN.
You can also always let an online currency converter like Western Union’s do the math for you, but it’s helpful to know the basics of how rate calculations work.
FAQs
What factors should I consider when looking for the best exchange rate?
As you search for the best exchange rate, consider the current market rate, the differences in rates and fees across various providers, and the ideal timing of your currency exchange.
How can I compare exchange rates between different banks or money exchange services?
Comparing rates is a great way to narrow your search and zero in on where to get the best exchange rate.
There are many online comparison tools that display various institutions’ current rates side by side. You can also typically find rates listed directly on banks and exchange service provider websites.
Is it better to exchange currency at a bank or a dedicated money exchange service for the best rates?
Banks typically have better rates and fewer fees than dedicated money exchange services, particularly those in tourist destinations. However, online money transfer services often have more competitive rates that are more on par with bank rates.
What are some tips or strategies for getting the best money exchange rate when traveling abroad?
Curious about how to get the best exchange rate for your upcoming travels? First, explore exchange rates before you depart. Once you’ve embarked on your trip, avoid exchanging money at airports and hotels, where rates are higher. Instead, opt for local banks or withdraw local currency at ATMs. It’s also a good idea to bring a credit card that doesn’t have foreign transaction fees.
Are there any fees or hidden charges associated with getting the best exchange rate?
Yes. Currency exchange services, ATMs, and credit cards vary in terms of the fees that they charge. Before converting cash or making a withdrawal or payment, inquire about and understand all associated costs. Common fees to look out for include commission fees, service charges, withdrawal fees, and exchange rate markups.
How far in advance should I plan to exchange my currency to get the best rate?
Ideally, you should start tracking rates a few weeks to a month before your trip to take advantage of rate fluctuations. However, trying to time the market isn’t easy. It’s usually more worthwhile to focus on finding a reliable and cost-effective exchange service.
Make sure not to wait until the last minute, as it can take several days to a week to receive exchanged currencies, particularly if it’s not a major currency.
