The best way to exchange money when travelling

Should you use a local ATM or exchange before leaving?



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What is the best way to exchange money? That’s easily the question I get asked the most these days. Maybe it’s because finding deals on flights and hotels are a little easier these days but it’s more likely that people are just more aware of how exchange rates affect us.

A couple of years ago, the Canadians dollar was on par with the U.S. dollar but now we’re at historic lows. When Brexit happened, the English Pound dropped in value which made it a buying opportunity for those who were heading over to the U.K. The point is, currency exchange rates change all the time and there’s not much we can do about it. Instead of worrying about the exchange rates, we should focus on minimizing the fees we pay.

Avoid fees completely with credit cards

Although it’s not technically cash, using a credit card with no foreign exchange fees is the cheapest way to pay for things. Getting physical cash will always require you to pay a markup on the spread while foreign ATMs will charge you at least 2.5% extra. Not every card waives the foreign transaction fee so if you don’t have one of the following cards, you’ll be charged an extra 2.5% whenever you make a purchase in a foreign currency. Rewards Visa card – I personally use and recommend the Rewards Visa card since it has no annual fee. You don’t get any other good benefits but it’s the perfect card to use when making purchases in a foreign currency.

Marriott Rewards Premier Visa – Although the Marriott Rewards Premier Visa has a $120 annual fee, the 30,000 bonus stay and free anniversary stay make it worthwhile but only if you’re loyal to the Marriott brand. This program is worth keeping an eye on since Marriott recently acquired the Starwood brand of hotels.

Check out my post on about Canadian credit cards without foreign transaction fees for an in-depth analysis of each card.

One other thing about using credit cards when travelling. When given the choice, always choose to be charged in the local currency as opposed to your home currency. The reason for this is that merchants set their own rates which can be much higher than the rate Visa and MasterCard use when you pay in the local currency.

Exchange options when you need cash

ATMs – Local ATMs will almost always be the cheapest way to exchange money. Generally speaking, ATMs charge the spot rate plus about 2.5%. This extra charge is known as a foreign transaction fee and can’t be avoided. Your home bank and the specific machine you’re using may also charge you a one-time fee of up to $5 so that’s something to consider with your overall costs. The best way to exchange money while minimizing costs is to simply withdraw your daily limit or use an ATM that’s partners with your bank.

Foreign exchange offices – This gets a bit tricky since every exchange office has different rates. Foreign exchange offices found in airports and malls usually don’t have good rates. Any “no-fee” exchange office also tends to have higher rates since they need to make a commission. Despite all of this, some exchange bureaus offer competitive rates. The key is to know what the exchange rates are so you can do the math to see if the rates are fair. If the premium is around 2.5% then you’re getting a decent rate.

Banks – This may come as a surprise but exchanging money at any of the big banks in Canada is usually not a good idea. Unless you’re getting USD, banks charge a pretty premium when exchanging money. Their overall rates really aren’t that good and often you’ll need to order the currency in advance.

Online – If by chance you need to exchange a large sum of money ($2,000+), Knightsbridge Foreign Exchange is the cheapest option for Canadians. Zenbanx also offers really good rates but they only deal in eight currencies and to get the physical cash, you need to withdraw it from a local ATM with the debit card that they provide.

For a more detailed look at the above and why travellers cheques are pretty much useless these days, check out my post on about the best foreign exchange options for travellers.

When to exchange money for travel

When to exchange money is a question that’s asked by many travellers but it’s a game best not played since you’re essentially trying to time the market. The reason it’s become a bigger issue as of late is because of Brexit. Once the vote was confirmed to separate, the British Pound dropped 10% overnight. Let’s be clear, such shifts in the value of currencies are quite rare. If you were planning to travel to England soon, this worked in your favour but in general, you shouldn’t try to time the market.

If you still insist on trying to get the best rate on cash but you don’t know when to exchange money, I suggest dollar cost averaging. That means you would purchase a set amount of cash a few times leading up to your trip. So let’s say you exchanged $1000 worth of cash 3 different times at the rate you got each time was .90, .85, .95. In this example, your average cost would end up being .90. You didn’t buy at the lowest rate nor did you buy at its peak—you paid the average.

The problem with this strategy is that you’re exchanging money in advance at home where rates aren’t very good. As you’ve read, the best way to exchange money is a combination of using credit cards and local ATMs so why bother trying to time the markets?

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One comment on “The best way to exchange money when travelling

  1. Great article, Barry! I just returned from Europe, where i used my Amazon visa for all larger purchases without any issues or additional exchange fees! I took out a bit of cash before I left for the trip at a local exchange booth. Once in Europe, I intended to use my new tangerine debit card in the Scotia global network of banks as the seemed to have little to no fees but I forgot my card at home! So I ended up overpaying my visa, so I had a negative balance, then using the visa as a debit card. Since there wasn’t a balance owing, no interest is incurred on the cash withdrawal. I called Amazon visa to make sure! The conversion rate was just the daily rate, same as making a purchase, and the only additional charge was 1% of the withdrawal amount or $5, whichever is higher. I only took cash out twice and it ended up working out pretty great.


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