How to lock in high currency ratesPUBLISHED : | UPDATED:
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The Australian dollar rate against the greenback won’t always be sky high. Photo: Phil Carrick and Rob Homer
- Use prepaid currency cards sold by banks and currency outlets. The exchange rate is set at the time you load the card – but check the card doesn’t expire before you go overseas
- Overseas merchants may offer card users the choice of paying in Australian dollars – but the exchange rate charged will almost certainly include an extra profit margin for the shop
- Regular travellers might consider a foreign currency account to be like depositing funds at today’s rate – just don’t expect to earn any interest
An obvious way to lock in current exchange rates is to buy either cash or travellers cheques now, although you’d want to check they are covered by home contents insurance.
Another option is to use prepaid currency cards sold by banks and currency outlets such as American Express. The exchange rate is set at the time you load the card – but check the card doesn’t expire before you take the trip.
Depending on the issuer, the upfront fee is about $15 (it can be free for some customers). Nothing is charged to initially load the card but every time cash is added a fee of about 1 per cent may apply. Several currencies can sometimes be loaded onto one card at once.
The card is used like a debit card, but without the foreign transaction fee charged by merchants when you make a purchase or booking.
Using it to get cash out of an overseas automatic teller machine will cost a few dollars.
Some overseas merchants may offer card users the choice of paying in Australian dollars. But the exchange rate charged will almost certainly include an extra profit margin for the shop, according to CreditCardFinder.com.au editor Jeremy Cabral. And the rate they charge may not be as competitive as that offered by your bank.
A downside of buying currency ahead of any intended travel is the interest forgone on savings. Regular travellers might consider a foreign currency account to be like depositing funds at today’s rate; just don’t expect to earn any interest.
There are generally two fees when buying foreign currency: a currency conversion fee and a foreign transaction fee. Cash or travellers cheques will incur a currency conversion fee based on the exchange rate of the day.
ForexCT head of research Steven Dooley says you can be charged between 3 to 8 per cent on transactions so it pays to shop around. Cashing in travellers cheques may attract an additional fee, depending on the issuer and where you cash them.
Using an everyday transaction card or a credit card while overseas will generally attract both a currency conversion and a foreign transaction fee, which vary depending on the exchange rate of the day and the merchant.
Bina Brown Smart Investor