Currency Conversion In Depth Question

Does it really matter?

Here's a hypothetical:

Assume a two-week trip at $300/day.

Half of that will be spent on hotels/suppers/inter-europe transportation -- thus on a credit card.

Half will be spent in cash withdrawn from ATMs -- maybe $3000. One percent of three grand is thirty bucks.

Is the small difference worth opening a new account, having another bill to keep track of, etc ?

Check with your own bank or credit union to see what their deal is. My local of each charges so close to the oft-touted ones that I refuse to mess with it -- and I spend about half of each year traveling.

Plug in your own numbers and see what happens.

Final thought: don't confuse credit card fees with ATM fees.

Currencies are exchanged on an open market. Basically, their value is whatever a person is willing to pay for it. Much like a stock. This is why you will see exchange rates fluctuating on a daily basis. The Wall Street Journal does not set a rate they are merely reporting the previous days rate at the time the exchange closed. Credit Card Companies, Banks, and currency exchange booths at the airport charge a fee for converting your currency. This is how they generate a profit.

ATM's do not charge a conversion fee. This is because you are not exchanging currency. You are actually withdrawing money from your account in the form of the local currency - thus no exchange is necessary. This does not mean the ATM is free from fees. There can be a fee for using the ATM and their can be a fee from your bank for not using their ATM. Check with your bank about international ATM withdrawals.

When you use a credit card your bank or Visa can both charge a fee. And you have already found out that even though your bank does not charge a fee Visa will.

A 1% fee is so small that it should not deter you from using the card. Or do I what I do which is pay for everything in cash. A lot of places in italy only take cash. This is very common with small B&Bs. The advantage to using cash is that it forces you to watch what you spend. So my advice is to use cash as much as possible.

If you follow your (A) and set up the Capital One Money Market account, you can use the ATM card you get with it and avoid all those charges.

HI Everyone,
Just incase others are reading these posts....today I stopped into my bank AGAIN to make sure everything was squared away for my trip. This is what I learned:

1. They messed up my trip dates, having me leave a full month after I was leaving. This matters because I can't use my ATM cards unless the bank has record of me being overseas. Lesson learned: double check with your banks and credit cards before you leave to be sure everything is set up correctly.
2. Although my bank allows me to withdraw 600 USD per day while abroad, the bank told me MOST European ATMS max out the withdraw amount per day to 300USD.
   

Does anyone know if #2 is really true?

The last time we were in Italy, most ATMs had a single transaction withdrawal limit of 350 euros. Although I think we ran into a couple that were 250 euros. That was not their daily limit just the transaction limit.

Sometimes you could complete that transaction then pull the card and start over and get more cash. Other times you just moved down the way a bit and used another machine.

I always call 2 weeks before my trip and let the ATM and CC company know I will be in europe. I then call the back the day before to verify. They usually have it marked but sometimes the ATM card didnt (or then they made be speak with a different decurity dept. which means they didnt do it yet!) So yes - Trust - but Verify!

Well, If you want detail;

The actual exchange rate for ATM and Credit Cards is based on the Interbank exchange rate based on the time that the transaction bank and your home bank (or credit card) complete the transaction. As mentioned, this rate fluctuates constantly during the day and is reported many places as either a spot closing (point picked in time) or a daily average depending on where you get your info or on criteria the banks agree on. At this level, you really get no better rate anywhere.

From there, it can get fuzzy real quick. Some banks may say that they charge no fees, but wrap costs into the above exchange. Others may delineate fees normally included, or may add fees. My Credit Union itemizes both an International Service Fee(ISF) and a Currency Conversion Fee (CCF), this sounds bad, but here is a real breakdown:

On Feb. 22, in Florence, I withdrew 200 Euro. If I go to Oanda.com I can see that the Interbank rate was a low of $1.3607, a high of $1.3642, and an average of $1.3619. That means, hitting an average, that 200 Euro should have cost me $272.38. Now my bank did charge me $2.16 for the ISF and $0.54 for the CCF, however, my total cost was $269.77+$2.16+$0.54= $272.47. Basically, my end cost was pennies different than the interbank average, meaning my credit union (or Visa that handles the debit card side) was able to get closer to the minimum rate, or there may have been some timing issue with previous or next day.

Many times I have done this calculation with the same result, my cost is 1%, usually less than Interbank, and usually difficult to tell due to normal fluctuation.

Based on what your bank is saying, you may be in the same situation as I, so use your ATM card. With a $600 limit (I get by on a $300 limit) you should be fine, any machine limit is overcome by making more than one transaction.

And you thought I was done...

When it gets right down to it, to truly compare Capital One cards with your existing Bank ATM, you would need to make identical transactions at as close to the same time as possible, and see what your final cost is. It may very well be no difference, or one may be consistently more.

In my case, I cannot imagine a Capital One card being a better deal, or if it is, only by pennies, so why hassle with it (Well, unless they will up my daily limit, maybe...)

I can do the same with Credit card transactions, and calculate my "real" rate (nothing handy at the moment) but in the past, the 2-3% holds pretty good, so that is a second choice. Beyond that I rarely ever have to venture.

I have to thank EVERYONE on this website for the great advice you have been giving all along about currency conversion. This evening I ran into a friend who is going to London and asked her how she planned to convert her currency. Her answer: traveler's checks! I had to quickly explain to her how much more expensive traveler's checks would be than her ATM card or her Visa/MC. She could easily pay .10 ON THE DOLLAR for exchanging traveler's checks. If she spends 5000.00, she could easily pay 500.00 extra for the conversion, as opposed to 50.00 (1%) for using her debit.

What Michael wrote is what's best. First, I don't know if you have enough time for any of this but for those who still have the time to follow this advise, it saves a lot of money. First, never use your CC to pay for your hotel. Ask for their rate when reserving and when they send it to you, ask if they offer a discount for paying in cash. They usually always do and you'll save money right there. Next, the payment for hotels, sights, and sometimes food, which need cash payements, should be taken out of your Capital One Money Market which IS (not or) your ATM card...do not use your CC which will charge you a fee (1% or more depending on the card). Your Capital One Money Market has NO fees. Your hotel does not expect you to pay in full the day you arrive, so you have each day to withdraw $250 ($500 if you & your partner has their own acct).

Something you may want to check with your bank on also is the process to follow in case a bancomat does not give you your $$. Although this has not happened to me I've had people that have been living here for years tell me that it can happen.