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Just how do currency exchange offices make their money from providing currency exchange services? Finding the answer to this question is no easy task. In fact, it almost appears as if they don’t want the average traveler to know!
Currency Exchange ATM - Courtesy of Man Vyi, Wikimedia Commons
But first, what exactly do we mean by currency exchange offices? Well, this includes all institutions that do currency exchanges. These institutions vary in type, but they include banks offering exchange services, companies dealing in the sending and receiving of money electronically, and specific companies set up for the sole purpose of exchanging currencies. Some examples, along with their links, are:
Travelex, a currency exchange company:
http://www.travelex.com/
Western Union, known for its global electronic transfer of funds for individuals:
http://www.westernunion.com/WUCOMWEB/priceShopperRedirectAction.do?method=load
Bank of America, a standard banking house that offers currency exchange services:
http://www.bankofamerica.com/foreigncurrency/index.cfm?template=fc_calculate.cfm#rates
Wells Fargo, also a standard banking house that offers currency exchange services:
https://www.foreignexchangeservices.com/todaysrates
Picture Courtesy of U.S. Federal Government, Wikimedia Commons
Now again, the question is just how do they make their money?
Let’s start with Travelex. Their site lists a plethora of services designed to make your trip easier when exchanging your money for your destination’s currency. Whether just wanting to order packets of currency prior to leaving home or a preloaded debit-style card in the destination currency, Travelex has it all.
And on the face of it, this appears to be without any fees! Nowhere, could I locate any charges for services, unless it was the necessity to order larger amounts of currency in order to qualify for a certain extra service, as in cashing in leftover currency at no charge upon returning home. Sounds ideal, doesn’t it? Think again!
Travelex has a currency converter calculator on its site. As a test, I converted American Dollars to the British Pound Sterling. Their calculator said this would cost:
$1,766.26 US for ₤1,000 GBP.
This means an exchange rate of 1.766, although, I could find no conversion rate posted there to tell the consumer this. Daily published rates at stock exchanges said the going rate was 1.644 at the time.
Right off, one notices that there is a difference of .122 between Travelex’s calculator conversion rate and the lower daily one. This results in a significant added cost to the traveler, especially if exchanging larger sums of money. The difference adds up quickly.
Unfortunately, it doesn’t end there. Upon calling a Travelex office in North Carolina, they informed me that for ₤1,000 GBP, I would have to pay:
$1,870 US.
Now, this was at an even higher conversion rate, 1.87 than their online calculator suggested at 1.766. This meant another $103.74 US more in costs for the conversion. That’s a .226 difference in their rate and the daily listed one. This is an almost whopping 23 percent charge to convert currency. Not cheap!
Get it? Travelex does charge fees for its services, but they are largely hidden. They do this by using an inflated conversion exchange rate, one considerably higher than the daily average. What’s more, their onsite conversion calculator didn’t seem to reflect just how high that actual fee is, since it seemed to use a rate of 1.766 rather than the 1.87 number given me over the phone. Interesting, isn’t it?
Travelex is not alone. Western Union also charges fees. Here’s a breakdown on that same ₤1,000 GBP conversion with them:
1,000 Pounds Sterling cost $1,732.59.
This is at an exchange rate of 1.73259. However, they also tack on another $103.00 service fee.
The total cost to send the ₤1,000 GBP is:
$1,835.59.
This means, in reality, a de facto exchange rate of 1.835, or roughly a 19 percent fee for the conversion. Again, not cheap!
Where Travelex considerably inflates the exchange rate to get its fees, Western Union inflates the exchange rate some, and then tacks on a service fee, too.
The banks I telephoned averaged 1.713 to 1.72 in their conversions rates for Wells Fargo and Bank of America, respectively. However, beware of added fees! When ordering cash in advance, banks also often tack on a service fee, over and above the exchange rate. Credit cards offer close to the current daily rate usually, but again, they can have high transaction fees on cash advances.
Picture Courtesy of Roland Geider Wikimedia Commons
So what should you do?
Well, go to Currate.com. They have a conversion calculator that actually uses the real average daily rate to convert different amounts for you. They update it on a regular basis. This way, you’ll know the base figure of your conversion costs and can easily then see what banks or any institutions are charging over and above that amount.
If you have a mobile phone with Internet access, you can use one of two mobile phone versions, http://currate.com/m.php, or http://currate.com/e.php for phones with more advanced capabilities, for anytime access.
Mobile Currency Converter for Blackberry Storm
Also, they have images of currencies. So you not only know how much it will cost you in your currency to make an exchange, but what the destination currency actually looks like.
The wise traveler is a well-informed one. What you don’t know about currency conversion rates can cost you! So, use Currate.com. This will help you avoid those traps of large “hidden” fees.
Rob Shelsky, Currate.com Contributing Editor
References:
Travelex Research: US Travelers Prefer To Exchange Currency Domestically
http://www.ecommerce-journal.com/news/15652_travelex_research_us_travelers_prefer_exchange_currency_domestically?drgn=1
Travelex Wikipedia
http://en.wikipedia.org/wiki/Travelex
Main Global Site For Travelex
http://www.travelex.com/
