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When traveling abroad, people don't want to spend half the day scouring the city for the best currency exchange rate. But if they aren't careful, there's a risk of losing money on every foreign transaction.
"When you don't pay attention to exchange rates and fees, they can really start to add up," says Annie Wang, a strategy analyst at TravelNerd, the travel division of NerdWallet, a financial planning website based in San Francisco.
Before exchanging currency, take steps to avoid these common pitfalls of exchanging foreign currencies abroad:
Learn More About Using Online FX
One of the best ways to avoid paying more for foreign exchange services is to do research before leaving home to find out what the current exchange rates are, and where reputable currency exchange offices and banks are located. That way if travelers plan on banking overseas, they can go directly to the best service provider and feel confident about getting a good deal.
Individuals can also use a free online currency converter from a trusted online foreign exchange service to get a sense of the current exchange rates.
Most credit cards charge a 3 percent transaction fee, but cardholders will also pay another 2 to 3 percent exchange rate on top of that, says David Kuenzi, founder of Thun Financial, a financial advisory firm in Madison, Wis. "You get dinged on both sides when using your credit card." If pressed to use credit, research the cost for foreign transactions and look for cards that don't charge an added fee.
"Counterfeiting can happen anywhere in the world," Wang says. To avoid getting ripped off, individuals should become familiar with the color, watermarks and feel of the local currency. This can make it easier to spot a fake when receiving money back from vendors - although it probably won't be possible for the average person to spot a sophisticated counterfeit.
Every exchange has associated fees, so the fewer exchanges, the lower the costs. "The best way to save money is to consolidate your transactions," Wang says.
Individuals can use an online foreign exchange service to consolidate several smaller money transfers into a larger transfer and conversion of funds. "If you can, you might want to potentially lump your payments into one payment because everything is based on rate," says Victor Hinojosa, director of North American partnerships at Western Union Business Solutions. "So the bigger the amount, the better rate you'll most likely get."
If you plan on staying for a long time in a single country, banking overseas may be a better option. Consider opening a local bank account with an ATM card to minimize fees, Kuenzi says.
If individuals do set up bank accounts abroad, they can sign up for email market-rate alerts from a trusted online FX service to help secure the latest exchange rates for their currency exchange transactions.
Example: 1USD = xx INR
Have an ideal rate in mind? Set up a Market Alert, and we’ll email you if your rate becomes available.Set Rate Alert