How to avoid costly currency exchange errors

As a longtime digital nomad, Nora Dunn has lost a lot of money in the currency exchange game.

“I have probably made every mistake in the book along the way,” said Dunn, who shares travel tips and tricks on her The Professional Hobo site and YouTube channel.

Making unwise foreign currency choices can happen to even the most experienced traveler. Dunn, who is based in Toronto, has been working and living abroad since 2006. One of her most costly mistakes occurred on the Caribbean island of Grenada, when she used her credit card to withdraw funds.

“It wasn’t until I had actually done a few cash advances in withdrawals with my credit card that I realized I had been paying hundreds of dollars in fees that were unnecessary,” Dunn said by phone from Bulgaria.

While we are confessing, I have two: I have never withdrawn money from a foreign ATM, and I have exchanged money at the airport. I know - shameful and shameful.

But it’s never too late to change our currency exchange ways. By following the experts’ sage financial advice, we can become all the richer on our next international trip. I, for one, am starting now, on my holiday this month in Europe.

You don’t always need cash

In many destinations, you can use a credit card or digital wallet to cover your expenses, large and small.

“These days, in pretty much all of North America, Western Europe and increasingly more and more countries, it is possible to pay for everything, including bus fare, with a card,” Dunn said.

However, not all areas and attractions, even in the same country, are equally technologically advanced. At these sites, you will need the local tender.

Order foreign currencies from your home bank

If you’d prefer to land in your new destination with some cash in hand, order the foreign currency from your bank or another financial or travel institution, such as AAA. Dunn said the exchange rate at banks is often good, plus you will receive crisp bills, a requisite in countries that do not accept torn or excessively worn money.

Some banks may keep popular foreign currencies, such as euros and English pounds, in their vaults. If not, you can purchase the money online or through the bank’s app. In addition to requiring a minimum amount, the bank may charge a processing or delivery fee ranging from $5 to $20.

Alerting your bank to your trip isn’t imperative

Most credit card companies and banks do not require notification about trips abroad, but to be safe, Jeff Opdyke, a Portugal-based contributing editor at International Living, a resource for expats, recommends informing them of any impending foreign travel.

“Sometimes banks do freak out if all your purchases have been in Paducah, Kentucky, and suddenly your card is being used in Warsaw, Poland,” Opdyke said by email. His credit card company froze his card in Romania and Oman.

Avoid airport currency exchange counters

Currency exchange booths are generally awful, with high markups and false claims of “no commission fees.” Airport outlets are typically the worst offenders.

“Never, ever fall for the line ‘no fees.’ Total 1,000 percent poppycock,” Opdyke said. “They’re not charging a fee overtly; they’re just giving you a horrendously bad exchange rate that you’re not seeing.”

Stick with ATMs run by banks

Banks generally offer the best exchange rates, because, unlike independent ATMs in convenience stores, airports and tourist centers, they don’t tack on hidden fees or inflict high markups.

Before setting out to withdraw funds, check online for the names of the foreign country’s primary banks. Opdyke said he looks for the word “bancomat,” which signifies a real bank. ATMs to avoid include Euronet and Travelex.

ATM fees, even at banks, are inevitable. In most cases, you will pay the foreign bank a nominal usage fee. Your bank, meanwhile, will charge for using an out-of-network ATM (typically a flat rate of $2 to $5) plus a foreign transaction fee for converting the currency (1 to 3 percent of the withdrawal).

To cut down on extraneous fees, seek out your bank’s foreign branches, or use the financial institutions that are part of your home bank’s global network. Bank of America, for instance, will waive the $5 usage fee for customers who withdraw money at partner banks.

The exchange rate and fees will be similar whether you withdraw through an ATM or a bank teller. However, person-to-person communication can be difficult if you don’t speak the same language.

“Frankly, it’s going to be a lot easier to use the ATM,” Opdyke said.

Use a debit card for withdrawals

Always use your debit card, never your credit card - unless you have no other options.

When you use a credit card to procure foreign money, the company will treat the withdrawal as a cash advance and charge you a transaction fee (often a flat fee in the $5 range) plus interest on your statement balance.

To minimize interest charges, Dunn recommends paying off your credit card, including the amount of the withdrawal, before activating a cash advance.

“You can load dollars onto the cards directly from your U.S. bank account and convert into like 100-plus currencies directly in the app on your phone and at very fair interbank rates,” he said. “Then when you’re in whatever country, you can walk up to any ATM … and the ATM is going to treat you like a local.”

Choose the local currency

The ATM will ask you how you’d like to be charged, in the local currency or U.S. dollars. To receive the more generous interbank rate, always pick the former. Dunn warns that the bank might play mind games - “Are you sure you want to decline USD?” - but don’t fall for it.

“If you choose to pay in dollars, or if you accept the conversion, you are allowing the merchant you’re dealing with to set the exchange rate, and some of those can be usurious,” Opdyke said.

Spend all your cash before heading home

U.S. bank accounts do not accept foreign cash, so spend it while you can.

If you have a lot of leftover money, you can exchange it back to U.S. dollars before you leave or at your home bank, though you may lose some money in the conversion.