This is the next article on hidden costs we started last month. This time, we’re discussing costs of using ATM (Automated teller machine). And, as we have mentioned here a number of times, that probably is the cheapest way for a traveler to obtain currency in another country, by accessing it via an ATM [...]]]>

This is the next article on hidden costs we started last month. This time, we’re discussing costs of using ATM (Automated teller machine). And, as we have mentioned here a number of times, that probably is the cheapest way for a traveler to obtain currency in another country, by accessing it via an ATM with either a debit or credit card. We want to discuss the real costs of such a transaction, because there are hidden fees here, as well. And because these do differ from bank to bank, we picked a large sample of banks. Also, from what I’ve been able to discover, these fees are pretty much the same everywhere, whether Tokyo, London, New York, or Sydney.

Mobile ATMs installed in a van with guards, User PrimroseGuy, Courtesy Wikimedia Commons

But let’s take a typical transaction abroad. Let’s say you are an American in London, don’t want to carry too much cash with you, so you want to withdraw the equivalent of $1,000.00 from an ATM. (Yes, ATMs don’t usually allow so large a withdrawal, but the dollar versus pound rate has fluctuated greatly over the last two years, with the rate at one point being more than 2:1.) Well, the first thing you have to do is select an ATM from which to make a withdrawal. The good news is that as long as your bank is a member of VISA, CIRRUS, MAESTRO, PLUS (some banks list them in these ways), you can do this just about anywhere, and with few exceptions. Slovenia, as of the writing of this article and based on one source, is one of those exceptions, because only Slovenian citizens are allowed to do this. Also, based on another source, a Bank of America card worked fine in Hong Kong, but not in Brazil. So research your destination carefully before you go there!

So; rule number 1:  When traveling abroad, especially to multiple countries please be sure you have some of the local currency on hand and a credit card as a backup. This way, in places such as Slovenia, you won’t be caught short. Also, use the links above to locate ATMs that work for your particular card.

Now to continue with our scenario; let’s say you’ve found such an ATM in London (and these are usually no problem to find there), what’s next? Well, unless your bank is a member of the Global ATM Alliance, you are going to be hit with fees to use that ATM. Your bank could charge a flat rate of anywhere from $1.00 to $5.00 (e.g., Wells Fargo is $5.00), plus you will probably be charged by the bank that owns that particular ATM, as well, the so-called “host bank.” Again, this fee varies widely from bank to bank, but can run close to your own bank’s fee in costs. So, total cost of just using that ATM could be as much, or at least the greater part of, $10.00. If your bank is a member of the Global ATM Alliance, then the machine charges are waived. However, the currency conversion charges are not waived. Those still remain intact.

So; rule number 2: If your bank is a member of the Global ATM Alliance, be sure to use their affiliated ATMs. For Bank of America, for instance, this would be Barclays in the United Kingdom. If your bank is not a member of this group, you might want to consider opening an account with a bank that is, that is if you travel a lot, because over time, these fees can really cost you.

Okay, back to our scenario. So now we’ve found an ATM, and we’ve made sure as to whether or not it is a member of the Global ATM Alliance. In our example, it isn’t. We want to withdraw some cash.  Rule number 3: the best idea here is to draw as much money as you feel you may need, to the maximum amount you are comfortable having on your person. The reason for this is that if your bank is not a member of the Alliance, every time you withdraw money it is going to cost you significantly. Also, in addition and regardless of which ATM you use, you are going to incur those transaction costs which we are now going to discuss.

Banks charge a transaction cost for money conversions. There is the fixed rate of one percent that everyone pretty much has to pay if using the Visa/MasterCard systems (there seems no way around this unless you use American Express or Discover, because they apparently don’t use these systems, but there are still charges), and then there is whatever the bank decides to tack onto this. Why do banks add on to it? Well, the answer seems to be because they can. They want the extra money, so they charge extra.

ATM Screen Courtesy Wikimedia Commons, User Katrin Grünthal

If you are thinking this is a bit of a rip-off, you are absolutely right. It is just another way for banks to make money off of their customers. They are getting quite innovative in this ability of late, to their own customers’ distinct disadvantage.

The normal added on charge can be anywhere from another one percent of the total transaction to even more. Wells Fargo (like many banks), and according to one source, has upped its charge from two to now three percent of the total amount of the transaction. This is on top of the one percent that is always charged by the international clearinghouse, according to one irate customer’s website. So, we’re talking four percent of a total transaction here. That’s a cost of $4 dollars for every $100 dollars involved in the transaction, and don’t forget those possible ATM fees added into that if it’s a non-Alliance ATM you are using.  Now remember, different banks charge different percentage amounts. A few still don’t charge anything at all.

According to the “Bargaineering” website, http://www.bargaineering.com/articles/foreign-currency-transaction-fees-list.html, Foreign Currency Transaction Fees List, this is what some banks are charging their credit card customers (directly quoted from “Bargaineering”):

And according to the website, Money Blue Book, (http://www.moneybluebook.com/list-of-credit-card-foreign-currency-transaction-fees/) these fees are charged by these banks, and this is all directly quoted material from that site, as well:

And at Credit.com, they list these sample fees for banks:

Costs Going Up With Profits? Foreign Exchange Market Turnover Courtesy Wikimedia Commons

These include the 1% base transaction cost where applicable. However, doing some independent checking of this, I’ve found some of these numbers, though fairly recent, are already out of date. Changes are occurring rapidly and often since the current financial crisis. As stated, Wells Fargo, for instance and according to one source, has raised its rate again since the above articles were posted. So besides the 1% base charge, they went up to 3% recently on top of this figure (as listed above for them), to a total of 4 percent, instead of 3% according to that one website and same irate customer. American Express is another example, having raised their fees another .5% already, apparently. HSBC, according to another website, has raised its fees another 2% to a total of 3%.

Notice a trend here? Yes, the fees are going up, and quickly! And also yes, in these tough economic times, such figures change so rapidly as to be almost obsolete by the time we get them. However, the rest of the numbers still do seem to stand as of the time of this article. But always check with your bank just before going on a trip to see what they charge at that point in time. I’m betting these rates will continue to change in the near future, rapidly, and steadily upward.

But using these numbers, as an example, let’s get on with that equivalent to a $1,000 dollar transaction we were talking about earlier and let’s see what it will cost us. We will use Wells Fargo as the bank involved. Please remember, this is just an example only and again, most ATMs have limits on withdrawals that are well below this $1,000.00 figure. However, this amount has been valid in the recent past. Right now, in England, a withdrawal of ₤400 pounds sterling, would be roughly equivalent to a withdrawal of $660 US, but a little over a year-and-a-half ago, that figure would have been $840, so that’s another reason why I’m going with the $1,000 figure, to allow for normal exchange rate fluctuations. In any case, here’s how $1,000 breaks down:

Calculations for Total Costs for ATM Currency Transaction:
4% of $1,000.000
Transaction, plus $5.00 = $45.00 on $1,000.00
Note: Not including host ATM costs, if applicable, which could raise the figure closer to $50.00.

This is not cheap! And every time you withdraw this amount, this is what it will cost you.

Again, these fees seem to apply the same across the board, whether in New York, Toronto, London, Paris, Prague, Frankfurt, Beijing, Tokyo, Moscow, Cairo, Rio, or any other major city, since it is the banks themselves that charge them. Variables include if you are not using a Global ATM Alliance member, in which case, this again means the host bank for that ATM can add on fees for the use of their machine. The upper limit, seems to be right around $5.00 for this.

So there you have it.  Overall, you will pay considerable fees for the privilege of withdrawing money from an ATM while abroad, although this is still considerably cheaper than using foreign exchange services or bureaus that cost even more. And also remember that our example of $1,000 was just that – an example. Most banks won’t allow you to withdraw near that much. So, as in the Wells Fargo example, if you were just withdrawing $100.00, this would come to about $9.00 in costs and that is nine percent! The more often you withdraw and the smaller the amounts you withdraw, the greater the percentage comes to for the cost of doing this. That’s why it’s important to withdraw as much as you can, and as seldom as you can, to keep these costs down.

Cover Cartoon of Puck (magazine) titled: "The Central Bank— Why should Uncle Sam establish one, when Uncle Pierpont is already on the job?" Courtesy of Wikimedia Commons

As I’ve mentioned in a prior article, I’m planning a month’s stay in the United Kingdom this coming spring. That, for me, means a number of trips to the ATM while there, because I don’t like carrying huge amounts of cash on me. But rest assured I will be withdrawing the maximum allowed. I will split that between my father and me, and we will be using money belts. It’s the cheapest and safest way to go. And I say “cheapest” with reservations, because it is only the “cheapest” of a number of expensive ways to obtain the local currencies.  In my estimation, banks have seen to it that there are no longer any really “cheap” ways to get cash. Well, maybe for them by getting it from us through charging so many fees, hidden and otherwise…you think?

Rob Shelsky, Currate.com Contributing Editor
Robert Rademacher, Currate.com Editor-in-Chief

References:

Currate.com World Currencies Map
http://currate.com/map

MasterCard Locations
http://www.mastercard.com/us/personal/en/cardholderservices/atmlocations/index.html

VISA/PLUS
http://visa.via.infonow.net/locator/global/jsp/SearchPage.jsp

Yahoo Answers, Can I use my Bank of America debit card to withdraw money from any ATM?
http://answers.yahoo.com/question/index?qid=20080218154826AAUF7sU

Elliott, How to get rid of a foreign transaction fee on your bill
http://www.elliott.org/blog/how-to-get-rid-of-a-foreign-transaction-fee-on-your-bill/

Independent Traveler.com, ATMs Abroad
http://www.independenttraveler.com/resources/article.cfm?AID=41&category=8

ATM Conversion Fees
http://europeforvisitors.com/europe/articles/atm_conversion_fees.htm

Money Blue Book
List Of Credit Card Foreign Currency Transaction Fees

http://www.moneybluebook.com/list-of-credit-card-foreign-currency-transaction-fees/

Credit.com Foreign Currency Conversion Fees are an Unwelcome Companion, by Shane Romig
http://www.credit.com/credit_information/credit_cards/Foreign-Currency-Conversion-Fees.jsp

USA Today
Pre-vacation research can reduce currency-conversion fees
http://www.usatoday.com/money/perfi/columnist/block/2006-05-29-currency-exchange_x.htm

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