You see them every time you pass through an international airport, or you’re walking the streets of just about any city outside the U.S.: currency-exchange kiosks and the money-machines connected to them. Both are a currency exchange ripoff. You should avoid them at all costs – and you can.
Too many travelers – and that includes Digital Roamads who should know better – regularly hit up these kiosks and non-bank money machines. But unless you find yourself facing a life-or-death choice, relying on these places to convert one currency for another means throwing away lots of money unnecessarily.
First, know this: Any time you see “0% commission” or “No Fees,” it is a lie … 100% of the time. Period. No exceptions. Ever.
Think about it: This is a business. How do businesses stay in business? They earn a profit. Otherwise, it’s not a business but a charity … and there’s no such thing as a charitable currency-exchange organization.
Every currency-exchange booth in the world is charging you a fee. Some are honest about it; others not so much. They’re hiding the fee in the currency-exchange rates they’re offering you.
So, the more you know, the better prepared you in are choosing where to convert your cash.
Without diving too deeply into the weeds of the 24-hour-per-day global currency market, here’s how you get screwed when converting currencies at an exchange kiosk, at a money machine, or when using your credit card outside your home country…
How Currency Exchange Booths Rip You Off
The ripoff: Rates that bear only a passing resemblance to reality.
Let’s say you’re an American who landed somewhere in the Eurozone, and you head to an exchange booth where you see an electronic board announcing the buy/sell prices for currencies. You want to trade dollars for euros, so you see something that looks like this:
EUR: 1.0062 – 1.1959
This is saying that for every €1.0062 you give to the exchange booth, you’ll receive $1.
And for every $1.1959 you give to the exchange booth, you’ll receive €1.
The scam here is that these rates were posted on a day in 2020 when the real euro/dollar spread in the global currency market was:
EUR: 1.0871 – 1.0866
Now stick with me for a minute because there’s a tiny bit of math here.
See, all currencies trade in pairs, such as dollar-euro, euro-yen, yen-dollar, etc. And all currency prices are in pairs as well. But when you look at some a quote like EUR: 1.0871 – 1.0866, that’s just one side of the pair. That’s just saying that when you’re buying euros with dollars, even $1 will get you something between €1.0871 and €1.0866.
If you want to make the opposite trade and sell euros to buy dollars, then you just divide 1 by those numbers above. So 1 divided by 1.0871 and 1 divided by 1.0866. And what you get is:
USD: 0.9199 – 0.9203.
Now we can see exactly how the currency exchange ripoff works.
The exchange booth want to you to pay €1.0062 for every $1 you buy, when each dollar should only cost you about €0.92.
And the booth want you to pay $1.1959 for every €1 you buy, when each euro should only cost you about $1.08.
So, the booth is skimming an extra 9% to 10% from your pocket without you knowing it. Sure, they’re not charging you a commission. And there’s no fee listed on the receipt. But you paid a big cost nonetheless because you locked in a bad exchange rate.
The solution: Do NOT use a currency exchange booth unless it’s an emergency. It’s a guaranteed currency exchange ripoff every time.
Instead use a bank money machine. But even there, you have to follow a savvy strategy:
How Money Machines Rip You Off
The ripoff: Pushing Large Withdrawal Amounts at Shitty Rates
First, let’s clarify a necessary fact. Around the world, two types of money machines exist: those operated by a bank and those that are not. Bank money machines tend not to be a problem. But those that are operated by non-banks generally are.
The first problem you confront with a non-bank money machine is that you stick in your bank card and go through the login process with your PIN and then up pops a screen asking you how much local currency you want. Almost always the amounts are ridiculously large.
For instance, here in Prague where I live, machines operated by a company called Euronet are programmed to show a minimum withdrawal amount of 10,000 Czech crowns. At the time I’m writing this in 2020, that’s just over $400. I don’t know many people who need to withdraw a minimum of $400 every time they hit the money machine.
The reason the machines are programmed this way is because of the primary currency exchange ripoff – the horrible exchange rates. This is no different than the example above with the currency exchange booths. The types of money machines offer you exchange rates that are unfair to you. So, the more money you withdraw from the machine, the more money that must be converted into the local currency at those crappy exchange rates … which means more profit for the operator of a non-bank machine.
These currency exchange ripoff machines work on the simple theory that most people aren’t going to quickly calculate exchange rates in their head, particularly big numbers. Instead, they’ll choose one of the options presented; it’s the path of least resistance.
Because I know the scam, I chose “Other Amount,” which allowed me to reduce the withdrawal to 1000 crowns, about $40.
But look at the next screen I’m presented. There on the fourth line, Euronet is telling me that for every €1 I pull from my account at a euro-denominated German bank, I will receive 22.5682 Czech crowns, meaning this request for 1,000 crowns (plus the 99 crown transaction fee) will cost me €48.70.
Yet on this particular day, the crown/euro exchange rate was 25.7876 crows per euro, meaning this transaction for 1,099 crowns should have only cost me €42.61. Euronet wanted to take an extra 12.5% for itself. A huge currency exchange rip-off.
How To Avoid The Money Machine Rip Off
Here’s the way to save yourself money: You see that the machine is asking me to either Accept Conversion or Decline Conversion.
It’s a slight semantics game. People see accept and decline and they think “accept” means continue with the transaction and collect your money, while they assume “decline” means stop the transaction and don’t collect the money you need.
Alas, that’s not correct.
Accept means accept this conversion rate we’re showing you and get your money … while decline means decline these rates but still get your money.
And what you want to do in this situation is to always decline the conversion. Always!
When you do, you’re telling the machine that you will let your bank to set the conversion rate. And bank conversion rates almost always happen at what’s known as the “interbank rate,” the rate that banks use globally on an institutional level to move money around the world. It’s just about the fairest rate you’ll find.
Indeed, I declined the conversion in this example, and the 1,099 crowns cost me right at €42.61, saving me that 12.5%.
Over the course of scores and hundreds of money-machine transactions you make when living abroad, you’re saving yourself hundreds, if not thousands of dollars. Indeed, if you took out $40 a week as in this example, you’re saving $6 per transaction, or more than $300 per year. That adds up to real money when you’re Roamad.
The other option: Avoid non-bank money machines and, instead, always looks for a traditional bank. More often than not, your transaction will go through at interbank rates without you have to choose. If not, you’ll still be presented an option to Accept/Decline conversion.
You can ask Google the name of local and regional banks that exist wherever you’re headed. Or just look for the “bancomat” sign. That’s typically an indication that you’re dealing with a traditional bank.
How Credit Card Machines Rip You Off
The ripoff: Bad exchange rates and the perception that you’re avoiding currency conversion fees.
Here’s how it goes … you’ve just finished a meal, or you’re checking out of a hotel, and you’re paying with your credit card. The waiter or the desk clerk runs your card and presents to you the handheld machine that now displays an option that looks like this:
The machine wants to know if you want to “Pay in USD” – pay in U.S. dollars.
This is another slight semantic trick. Travelers often have just enough knowledge to be dangerous to themselves. They know about currency conversion and that costs are involved. So they see “Pay in USD” and they smartly assume they won’t have any currency conversion costs since they’re paying in dollars.
Then, back at home weeks later, the credit card bill arrives and it includes a currency conversion fee. Worse, what they don’t realize is that they were hosed twice.
First, the exchange rate they were presented on the credit-card machine was a bad rate. The rate you see in that picture is $1.0899 per Swiss franc. And since this purchase cost 48 francs, the bill in USD is $52.32 (48 x 1.0899).
That rate, however, was set by the merchant, not a bank or a credit card company. Indeed, on this particular day, the real exchange rate was $1.0028 per franc. So this purchase should have cost just $48.13. Instead, the merchant wanted an additional 9% for no other reason than sneaky greed.
Second, even if you choose “Pay in USD,” this Swiss merchant operates in francs – his local currency – so a conversion from dollars to francs still must take place no matter what.
By choosing Pay in USD, you’re telling the merchant you accept his rate for converting your dollars into francs.
If you select “CNL=NO” (in the bottom left of the screen in the photo), you’re telling the merchant you’ll let your credit card company set the exchange rate. And, again, that will be at the interbank rate, and the real cost to me will be closer to $48.13 on your credit card bill.
How To Avoid a Credit Card Currency Conversion Fee
Now, as for the second problem – the currency conversion fee – well that’s specific to the credit card you’re using. Many cards add 2.5% to 3% on top of every foreign charge you make. That’s spelled out in the fine print when you apply for a credit card.
To avoid those charges as a Roamad or as a frequent traveler overseas, you need a credit card that imposes no foreign transaction fees. Many exist, and I’ve written about those that I think are best here.
Note: Not all credit card machines offer you a choice between paying in local currency or your home currency. In those cases, the credit card company is doing the conversion, so you’re fine.
ThREE Takeways to Avoid Currency Exchange Ripoffs
Here’s what I want you to take away from all of this:
- Use a currency-exchange booth only as a last resort or in an emergency, and just accept that you are going to get ripped off in that transaction, even if the place insists that it charges No Fees and 0% Commission.
- Use traditional bank money machines to convert cash from your account at home directly into whatever local currency you need, and if you are ever confronted with Accept Conversion or Decline Conversion, always choose Decline.
- When paying with a credit card and presented an option to “Pay in USD” (or whatever your home currency is), always select No.
Being a Roamad means being savvy about your money. The farther we can stretch our cash, the more roaming we can do