While you weren't looking, US$ buys less

buy Deutsche Marks. They never go down.

I have been tracking the cost of fuel in Europe for about a decade along with the cost of the Euro. Our trade deficit with China has been huge for decades and in the last decade the rate for the Euro has ranged from $1.06 to $1.45 give or take so don't blame the trade deficit, it has been a constant issue. Remember that currency is a commodity and it has been said many times that the best way to make a small fortune is to have a large fortune and start trading commodities. For us amateurs, it's all a crap shoot.

ATM's track a bit lower than the banks because they have eliminated the cost of a teller, they all get their foreign exchange from from the same sources.

Option 3 - do nothing. There is no way to reliably guess what the exchange rate will be in the future. If you travel overseas frequently, just figure that some years you'll get a favorable exchange rate and other years you'll have a bad one. It will average out over time and many trips.

I wish I had your problems, a Euro costs me $1.60 Canadian this morning and the Pound costs $1.77. One of the reasons I still prefer cash when I'm travelling is because I've got plenty of money left over from past trips. In 2014 I bought some Euros that I paid about $1.40 for and used some of those last year when it would have been $1.55. I've also got leftover Pounds that I've paid between $1.62 and $1.75 for. Dollar cost averaging is a wonderful thing.

What does your crystal ball say?

It's blank. I would "do nothing". Speculating in currency is a fool's errand.

If I had a reliable crystal ball I'd be billionaire, but I'm not…

But the pandemic has turned the world upside down and I guess the exchange rates will fluctuate more than normal. But that is just a guess. And given the lack of progress at the Brexit negotiations I wouldn't be surprised if the value of the Pound Sterling drops a bit further.

It is a fool's choice. First, if you purchase any Euro in the US it will come with a price premium of 6 to 10%. That means the value of the Euro will have to increase by that amount so it would have to move in the range of $1.29 or more for break even. The ATM rate is always with 1% or less of the interbank rate. My crystal ball says you are a sucker if you get involve in currency timing. You can not win but you might, just might get lucky.

My crystal ball says: foreign exchange rates will continue to fluctuate up and down at no predictable range.

In the amounts of cash the normal traveler deals in for an entire visit to Europe, the savings if any would be worth no more than a good meal will cost you barring a total collapse of your home currency, and that would bring its own set of issues that would not be pretty. You would only benefit IF the price of the foreign currency continues to rise and rises more than the fees you will be charged by purchasing currency here. No one, and I mean no one, is going sell you currency at any sort of a discount (I mean discount as a rate lower than the market) and without a processing fee no mater how much they may protest otherwise. The fee is baked into the upcharge on the rate all commercial currency vendors set. And there may be other fees like delivery charges to cover as well. Maybe a friend returning from Europe would sell you some at the current rate or rate they were charged at the ATM, but unless you make prior arrangements they would not likely have enough to cover all of your needs.

And what to do about purchases you would make with a credit card or debit card? There is no way to lock in a rate on that unless you prepay today for everything you would want to charge while there. Nearly impossible. And having them charge you in USD, or whatever your home currency is, brings in its own issues with currency rates.

The first time I went to the UK, the GBP was around $2.10. I could barely afford a pint at the pub. The next time I went, 2 years later, it was closer to $1.35. I was really glad i didn't buy extra to save for a future trip. The Euro has also had its ups and downs, but has not impacted me on my travels as much as the GBP rate has during the period of time I have ben traveling to Europe.

I agree with Eddie's Option 3 - do nothing. When I went to the UK in 2007, 2008, the GBP horrible conversion was 1 US dollar-2.03 British pounds. When the exchange rate got "better" a few years later at $1 - 1.65 pounds, I got excited, and exchanged a few thousand dollars to have during our annual trips and stopovers at LHR. Who knew (certainly not I) that within 10 years, the dollar would get so much stronger against the pound. I always keep a few hundred euros and pounds on hand so I don't need to exchange upon arrival at a city, but I will certainly never stock up with a large amount again.

With a son studying in the UK, we do hold some GBP for university fees in a multi-currency account with associated Visa debit card, but it's virtually impossible to guess what the currency is going to do, and (almost) every time I've tried, I've got it wrong. I generally prefer to save myself the hassle and pay with credit card, changing a small amount of cash only.

if you purchase any Euro in the US it will come with a price premium of 6 to 10%.

I just compared Wells Fargo's FX rate, 1.2441 $/€, with Oanda's Interbank rate of 1.18206. That's a "discount" of 5¼%.

I've spent considerable time tracking Wells Fargo's rate vs the Interbank rate, and WF averages 5% over for the euro. I think they fix their rate for the day early in the morning at 5% over the Interbank rate at that time, so as the Interbank rate changes during the day, their rate can be more or less than 5%. Wells Fargo has the lowest FX rate for euro I have found in this country, but you have to bank there to get the rate.

I never get euro here; I always use ATMs in Europe, but I save several hundred euro from my last trip to make sure I am covered for the first day or so when I get over there (I once found that my ATM cards would not work at the ATMs in FRA when I got there - long story).

BTW, when I returned to Europe travel in 2000, the German Mark had been set at 1,95583 DM/€, and the floating euro was about 88¢, so the Mark was about 45¢. I've seen the euro go from 88¢ to about $1.60 to $1.18 now. Last time I was over there it was about the same as it is now.

I have found that the least expensive places by far, local restaurants for meals and small Gasthäuser, Privatzimmer, and Ferienwohnung for accommodations, are cash only, so it costs you less to travel in Germany if you use cash.

Lee, I have seen you use the term "discount" many times when discussing foreign currency exchange rates. I worked for banks most of my life including running a foreign exchange desk at a large multinational bank for 5 years and have never heard the term used that way. We always referred to it as "markup". "Discount" used that way seems like a way to confuse your customers who would then think they are paying less for the currency, not getting less. :-)

I probably first heard that term, "discount", meaning what you get is discounted from what the actual exchange rate would give you, used twenty years ago. I'm not sure where I heard it or if if I have heard it since.
I think it was referred to then as "the discount rate".

Mark, since you have recent and detailed experience with this subject, perhaps you can answer something for me. When I looked into this early in this century, the Network was charging banks 1% for handling CC or DC transactions (POS or ATM) in Europe. Is that still the case?

In the beginning, the 1% was just called a "foreign exchange fee". Since Wells Fargo deals in foreign currency, they wanted to pay the Network in the foreign currency and claimed they owed them nothing, since the 1% was for "foreign exchange". So the Network split the charge into a "Cross Border Transaction Fee" and a "Foreign Exchange Fee" ("fee" being a percentage or the transaction). It wasn't split 50-50; it was 6/10% for one; 4/10% for the other, but I can't remember which way. Do you know?

So WF pays the Network in euro (or Pounds, or whatever) and avoids the approximately ½%.

If your bank charges you nothing, they are eating the Network charge. When your bank charges you 3%, they are making money off of you. WF charges a flat $5, no matter what the withdrawal amount.

When your bank charges you 3%, they are making money off of you.

Your bank making money (profit) off of you in return for investing in creating and operating the technical and physical infrastructure is capitalism and the free enterprise system. Vote your dollars by patronizing the financial services that charge you less. And yes, vote.

Lee, OK, without this turning into a Payment Industry TED talk, here goes briefly what I know from working for Visa Inc the past ~20 years (I no longer work for them and do not represent them in any capacity now):

Yes, Visa and MasterCard still charge the 1% for international transaction processing. AmEx has their own rate. It is billed as a lump sum and not doled out individually by transaction, even though the amount is included in the transaction detail reported to the card issuers as a memo/non-financial figure (any fees charged by the merchant or ATM are considered part of the transaction amount and therefore not separated out). This is why so many banks just eat the fee now, it is easier. Of course those who still charge their own 3% to 5% additional fee will include it. Depending on volume, a bank or other credit card issuer can negotiate the network fee down to 1/4%. Wells Fargo falls into this pool, as does Chase, Bank of America, Capital One, and I'm sure many others (I did not have access to the actual details as they were not required in my specific job).

All banks now are settled in their native country's currency, there is no option to settle in foreign currency from Visa. So Wells has to accept USD. This makes sense when you consider that Visa moves over $11 TRILLION a day in over 160 distinct currencies. No one else, other than national governments, can match them or MasterCard on the currency exchange markets and cannot even in their wildest dreams match the rates the networks get. The Cross Border Fee was a result of a lawsuit brought against the networks by the cardholders who wanted transparency in what they were actually paying for foreign transactions -- it was too easy to hide inflated fees when only a total was presented. The judgement required the fees charged by the banks and the networks to be reported as separate line items showing the calculation on the cardholders bank statements. The Cross Border Fee represents what was the 1% processing fee. The Foreign Exchange Fee is what the bank charges on their own if it is a percentage. The $5 fee Wells (and others) charges is also to be listed as a separate line item but may include ALL of the $5 fees in one entry.

The bank I worked for considered the "discount" rate that which was the actual inter bank rate without the markup we added (6% on transactions less than $5,000 and spot market rate on larger transactions up to $100,000. Over that and you got to talk directly with a trader to work out a negotiated rate based on how much we liked you. Old school style. :-))

Would be happy provide more, but probably best through PM if you like.

Edgar, Nothing wrong with profit. I have never demanded that banking services must be free. But also nothing wrong with saving your own money. Therefore I have no issues with using a bank that charges me less or even nothing to provide the services I need from them. I do realize that if I am getting a service for what appears to be zero cost, they are charging someone somewhere some fee to cover it. As the famous saying goes: TANSTAAFL

So interesting, Mark! Thank you for sharing the insider’s insight.

Thanks for posing the question, Lee.

Mark. I agree that there is nothing wrong with a company earning a profit because it is an incentive to offer that service. My Rollover IRA and investment accounts are happy with company profits that fund my non-essential travel.

I would only ask that translation cost are transparent. So many forum participants seem to think that they are getting a free lunch on the FX transactions.

When asked one time for a prediction about what the financial markets were going to do, JP Morgan reportedly replied in a measured tone "They will fluctuate." So it is with markets, whether equities, currency or otherwise. Good luck trying to time that out just right.

In any case, travel and financial speculation do not seem compatible to me (one is enjoyably unpredictable, the other just unpredictable).

As the famous saying goes: TANSTAAFL

That should be TANSTAAFL-UYATB - TANSTAAFL - Unless You Are The Bank.

Note, the bank pays the Network 1% to handle the entire transaction, paying the owner of the ATM in Europe and converting the currency, the bank does nothing else, but then they turn around and jack up that 1% to 3% when they pass it along to you, Their 200% profit IS a free lunch.

Excuse me, I guess I'm old fashioned. Remember John Houseman on those Smith Barney commercials. "They make money the old fashioned way; they earn it!"

Explain to me how the bank "earns" that 200% profit for doing nothing.

And don't forget the interchange the bank earns on POS transactions. That fee the merchants pay every time you use any credit/debit card to buy something. It comes right out of the transaction amount and is not negotiable. So even if the bank charges you absolutely nothing in Foreign transactions fees, they will still make money for nothing. :-)

There are other costs for a bank to have credit and debit cards. There is a fixed amount per transaction charged by the network (it varies depending on what the bank can negotiate) and also varies depending on how many networks the transaction has to go through to get there and back for approval (the merchant may have to route through PULSE or NYCE or Star, etc to get to the Visa or MasterCard network to get the transaction to the bank and each adds its own fee). There are also fees for international participation -- not every credit/debit card will work internationally especially from smaller community banks or credit unions because they can't justify the cost. The banks have to have a customer service department for credit and debit cards. The networks offer this service, at a cost, if the bank is too small to need their own. Banks also pay the cost of manufacturing the actual cards (up to $2 per card if you get one with tap to pay). Does this justify the % fee some still ad on? Can't really answer especially if you add back the interchange fees that give the banks income to offset the costs.

Oh, forgot to mention. ATM owners get paid nothing, nada, zilch, from the networks for having that box of money sitting there (except for the Euros, Pounds, or whatever you withdraw. I mean they make no profit from the ATM unless they charge a fee themselves). That's why I am always amazed when the ATM in Europe doesn't want to charge me €5 when I get cash. And why I avoid ATMs in general at home in the US since all of them (except the ones run by my bank) charge me a fee.

But this is what you get when you have a system built by the banks to benefit the banks with almost zero input from the actual users of the system.

Hi everyone- this is all very interesting. Here are my simple ways to minimize extra fees and costs on travel from the US to Europe.

1. Use a US bank ATM card that charges no fee to obtain €s from ATMs in Europe. Since USAA started charging 1% I presently use a debit card tied to a brokerage account that still has no fee to use ATMs in Europe

2. Use ATMs at European banks that do not charge ATM transaction fees. I use Deutch (spelling?) Bank in Germany. The Munich and Frankfurt airports also have DB ATMs.

3. Use bank credit cards that do not charge foreign transaction fees if you use it to purchase everything that you do not pay cash for.

4. I also "hedge" the value of the €. I pick a value for the € that I am comfortable with (presently about $1.10).
   (I remember the year the € was $1.40 + and vowed to never get caught in that again!) Then I purchase enough FXE shares from my broker to cover the next trip or two. Of course this creates a loss if the dollar rises against the € but I am happy with the locked in rate so I don't care if I loose a little.. Back in pre-€ days I tended to purchase AMEX travelers checks in Swiss Franks which were easily cashed at very good rates in AMEX facilities all over Europe. I suspect that one could also hedge with currency futures but my SO is VERY risk adverse so I haven't actively pursued this train of thought.

BE SAFE !!!

I last bought Euros in Sicily in 2018 and the rate was $1.18, so what’s old, is new again. I still have a bunch. I last bought British pounds at $1.24, so I’m doing well with the ones I have. As soon as travel opens up, I’ll be more than happy to spend them. Now I just need to get to the Bank of England to exchange those last 3 old £20 paper notes to the new polymer ones since by the time we’ll be able to travel again, the transition period will be over.

Edited for Kenneth: since we go to London pretty much every year, exchanging the old paper notes for the new plastic ones won’t be a problem. The problem is not being able to get to London right now. I was not referring to exchanging them back to dollars.

jaime- contact your local bank or a larger bank like Wells Fargo and see if they will exchange your 20 pound bills. We changed some extra €s back to US $ at WF several years ago. Of course you will lose 5 to 10 % but that is better than losing the whole 60 pounds. Or use the foreign currency exchange service availble in most airports. I still have some FF coins from the pre- € days - US banks are usually only interested in paper money...

And in case you haven't noticed -- the U.S. dollar doesn't buy as much in the stores at home, either.

I leave Europe with about €100 in cash for the next trip, to get me through the first day until I come to a safe and convenient ATM where I can use my Schwab card.

I’ve worked in finance and spent a lot of with the currency markets. Definitely option 3, do nothing. Unless you’re negotiating million dollar international business deals, just deal with the exchange rates given, it won’t make enough of a difference for the average tourist.

While I know some people stockpile physical currency, I still will never understand why. I try to return home with as little as possible. I always assume I’ll return, but Covid and job loss definitely smacked me in the face that I don’t have a God given right to an annual Europe trip.

As a math atheist I don’t honestly care.

What I do care about is that a viable and affordable Covid vaccine is developed for all our safety and health.