Currency exchange is a service you pay for: you have one sort of money and you want to exchange it for a different sort of money. Someone offers you this service. By performing this service, they expect to earn a profit, as for any service. But if they give you the full equivalent value of one currency for another, there's no profit. So what's a currency-exchanger to do?

The story goes way back:

Jesus & the "Thieves"

The outrages of currency exchangers go back to Biblical times when Jesus cast the money-changers out of the temple in Jerusalem, calling them "thieves."

2020+ years later, can they still be that bad?

They can!

You've spent time finding the best airfares and hotel prices for your trip, so spend a little time learning how to save money on currency exchange. Don't deal with thieves!

Buying Money & Service

The price of the money you're buying is determined by two factors: the rate of exchange and the commissions and fees for providing the exchange service. You want the highest rate of exchange and the lowest (or no) fees. Here's how to tell the difference.

The Interbank Exchange Rate

First, look up the interbank exchange rate for the currencies involved using Oanda.com, xe.com, Yahoo! Finance, Google Finance Converter, or a currency conversion app on your smartphone. This is the "wholesale" exchange rate used among banks. The rate changes minute by minute, but usually doesn't fluctuate greatly in a single day. You won't be offered a rate this good, but knowing this rate allows you to recognize a good (or bad) "retail" exchange rate when it's offered to you.

Understanding the Spread

A currency exchange business (bureau de change, ATM, bank, credit card company, etc.) makes its money by buying currency at a price lower than the interbank exchange rate, and selling it for a price higher than that rate.

The difference between the lower and higher prices is called the spread.

At a currency exchange office you might see an electronic display showing the Buy and Sell prices. Using US dollars as an example, it may look like this:

Currency	Buy	Sell
US$	0.85	0.95

This means that if you want the currency exchange office to buy your dollars and give you euros in exchange, you will give them one dollar and receive 85 euro cents in exchange. If they buy US$100 of your dollars, you will receive €85 in exchange.

If, at the end of your trip, you have euros left that you want to re-convert to dollars, the exchange office will sell you dollars for 95 euro cents each, meaning that you pay €95 for US$100.

So they bought your $100 for €85, and sold it later for €95, and made a profit of €10 on you (€5 per transaction).

The spread in this case is thus 10 euro cents per dollar, meaning that the interbank exchange rate is probably 0.90 euro cents per dollar, or €90 for US$100. Thus the currency exchange office is earning—and you are paying—5 euro cents (half the spread) each time you sell or buy one dollar.

The Price of Money

That 5 euro cents per dollar exchanged is the price you are paying for the money you're buying. If the interbank rate is 0.90 euro cents, then you are paying 5 euro cents (5.6 US cents) per dollar to exchange money, and for the US$100 you give them, you receive the equivalent of only US$94.60 in exchange.

Wow! $5.60—5.6% of your money—gone just like that!

Exchange US$1000 and you pay US$56! That's the price of a good dinner in a Paris restaurant!

So a big spread means you pay more, and the office makes a big profit on the transaction. A small spread means it makes less, and you get more in your pocket...for that nice Paris dinner.

ATMs & the Spread

In general, currency exchange offices use bigger spreads (worse deals for you) than bank and credit card electronic networks, that is, ATMs (cash machines). So if you use your bank debit card or credit card to get euro cash, you may receive a better rate of exchange...but not always.

You insert your card into an ATM and the machine should display the rate of exchange that will be used. If you know the day's interbank exchange rate, you can calculate how good (or bad) a price you're being offered.

For example, if the interbank rate for the day is 0.90 euro cents per US dollar, and the ATM offers to buy your dollars for 0.88 euro cents each, that means you're paying 2 euro cents (2.22 US cents) per dollar, or 2.22%. For US$100 you should receive €88—that's €3 more in your pocket than the €85 you were offered at a currency exchange office.

Uh-oh...Commissions & Fees!

The Buy and Sell spread alone does not determine the cost of what you're paying for currency exchange. The currency exchange office, bank or credit card company many charge commission or fees on the transaction as well.

Commission may be a percentage of the transaction (0.5%, 1%, 1.23%, etc.) Fees and other charges may be set amounts (€5, €10 per transaction, etc.) These all lower the amount of money you walk away with. The exchanger will do its best to disguise or hide these amounts so that you find it difficult to know what you're paying until the transaction is completed and you've already paid them.

Now you see why Jesus was upset.

Then There's Dynamic Currency Conversion

Dynamic currency conversion is a fancy term for extracting even more money from you in a currency exchange transaction. It's when an ATM gives you the choice to have the costs (commissions, fees) of your currency transaction paid in your home currency; so instead of seeing a commission of, say, 20€ on your exchange receipt, you'll see the equivalent in your home currency, something like US$22.22. This means that the fees you pay will go through yet another exchange transaction costing you even more money! They do not tell you this, of course.

To save money, always refuse the option to pay charges in your own currency. Do everything in euros.

How to Save Money

We Do Something WISE...

We go to France several times per year to update FranceTravelPlanner.com, so we regularly need to make payments in euros. To avoid bad exchange rates and excessive fees, we use a service called Wise (formerly TransferWise), which offers international electronic banking and currency exchange at advantageous rates.

We set up a Wise account, transfer dollars to it from our bank, then convert the dollars to euros as we need them via the Wise smartphone app or website. Transfers and payments take place immediately (unlike banks, which may take days). Fees are low, or non-existent.

We also ordered a Wise Debit Card, which can be used like any bank debit card to pay for things or to obtain cash from an ATM. We save money because Wise debits our account in the currency of the purchase, so there's no additional currency exchange commission or fee paid on the transaction.

There are other, similar services available. We recommend this one because we researched it, we've used it for years, and we find it reliable and advantageous. More...

Other Money-Saving Tips

1. Before leaving home, ask friends if they have leftover euros you can buy. Find the interbank exchange rate on Oanda.com, xe.com, Yahoo! Finance, or Google Finance Converter, or on a currency rate app on your smartphone, use this for the exchange, and you'll both benefit.

If you travel to Europe more than once, return home with some extra euros in your pocket for use at the beginning of your next trip so as to avoid bad airport exchange rates.

If you have euros left after a trip, sell them to a friend at the interbank exchange rate.

2. Note the interbank exchange rate on the day you plan to exchange money so that you're aware of what a good or bad rate may be.

3. Do a quick calculation to see how many euros you "should" receive for the amount of your currency you wish to exchange. If the interbank rate is 0.90 euro cents per US dollar, and you exchange US$100, you "should" receive €90. You won't, of course, but the difference between what you "should" receive and what you do receive is the price you're paying for exchanging money.

4. If you must change money at a currency exchange booth or withdraw euros from an ATM at an airport—notoriously bad for currency exchange rates—change only as much as you'll need to go to the city center, where exchange rates at ATMs may be better.

If you take a taxi from the airport, ask the driver to stop at an ATM (distributeur de billets) in the city center so you can get euros there to pay for the ride.

5. Same goes for hotels: some will exchange your cash for euros, but the rate is usually not advantageous to you.

6. Use your credit or debit card to pay for as many purchases as possible, especially if your credit card is one that does not charge foreign exchange fees. Use cash as little as possible.

Here's more on debit & credit card use in France.

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