Thursday, January 15, 2009

The overground economy

Just a short post about exchange rates. As any of you who have traveled overseas know, generally the worst place to change money is a currency trading post at an airport, with perhaps the second worst being a currency trading post in a city (this, of course, excludes those countries with government-pegged currency rates, where the government set rate is often the worst). In my experience, you'll often get the best exchange rate taking cash out of an ATM, or via a credit card purchase.

I get a daily exchange rate e-mail from, and this morning's quoted the pound at $1.456. The current rate, as of 11:07AM EST on the Wall Street Journal website, is $1.455. I stopped at an ATM this morning on the way to Birkbeck to take out £100. It gave me two options: It offered me the withdrawal, with the exchange happening at that point, with a quoted price of $153.20. Or I could accept the withdrawal, with the exchange to occur some point further downstream. I opted for the latter, and by the time I arrived at my desk, my bank account back in the States had been debited $146.42. That's almost a 5% difference between the two rates. So the lesson to be learned is to be weary of ATMs that offer to send the transaction through the international EFT system denominated in dollars. You also want to be sure to have a U.S. bank account that does not charge for ATM withdrawals, and in addition, will rebate you any charges imposed by a third party bank. We found that Graystone Bank does this, so we opened up an account there before we left specifically for ATM use.

I've found that the exchange rate on credit card charges is generally within a percentage point of the XE or WSJ quoted rates. But be cautious about transaction fees; many credit cards charge a transaction fee for every charge incurred outside of the U.S. We found that Capital One does not, so we obtained a credit card from them before we left (and their exchange rates have been very competitive).

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