Exchanging money

When travelling internationally, one often needs to deal with different currencies. Thanks to ATMs and debit cards, it is typically convenient to withdraw cash without needing to exchange bills. Even better, thanks to the fact that credit and debit cards are widely accepted, you often do not even need to withdraw cash, but just pay the required amount with your card. When you move to another country or need to pay friends, family or business partners there, you typically need to transfer money internationally.

Payments when travelling

When travelling internationally, one always faces the problem of dealing with different currencies. Typically, the following rules are useful.

  • Never exchange cash. Local currency conversion of cash have large fees of typically 1-5% or even more. Only if you know for sure that you need cash and will not be able to withdraw local currency using an ATM, you should bring cash of another currency. In some situations it may even be smart not exchange this currency, if you know certain currencies (such as USD or EUR) are accepted in shops.

  • Pay by card if possible. Paying by by card (credit card, debit card, mobile card etc.) is usually the cheapest. For this, it is useful to have at least a Mastercard and a VISA-Card which does not charge international fees (foreign transaction fee etc.).

  • Withdraw cash by card if necessary. If you really need cash in local currency, withdraw it in small amounts at an ATM with a card that does not charge any fees (foreign transaction fee or cash advance fee). Typically, this means that you should use a debit card. Sometimes ATMs charge you a fee, in which case it is good to either try a different machine or use a card where your bank reimburses you for possible ATM fees.

  • Never choose to be charged in your home currency. Many payment terminals or receipts, will ask you, if you would like to be charged in the local currency or in your cards home currency (where it was issued). Your bank will essentially always offer a better exchange rate than the terminal providers, so ALWAYS choose to be charged in the local currency, in which the price is quoted by the merchant.

Best services for transfers and payments

I refer to an international transfer, if you want to transfer money between two accounts that are both in your name, but are located in different countries and typically in different currencies. The main distinction between an international transfer and an international payment is that in the latter case, you do not necessarily transfer to your own account. This is often more difficult than an international transfer.

  • International payment. Moving money from your account in one country into the account of somebody else in another country.

  • International transfers. Moving money between accounts in different countries in your name.

There are many service provider for both and many are rather expensive: Check, Paypal, WireTransfer, WesternUnion, Cash Advances, Withdrawing cash at an ATM abroad or travelling with currency to exchange it in a local bank. Usually any of these options is connected to several fees and in particular, the currency exchange rate may significantly differ from the interbank rate (the exchange rate that banks use when they exchange huge amounts). It is very common to pay between 2-8% of your transferred amount, just because you do not get a fair currency exchange rate. In general, the total costs consists of the following:

  1. Bank transfer fees. Most countries have a system in place which allows for free transfers between bank accounts in the respective country (or within a region, such as the EUR zone). However, as soon as you need to transfer funds internationally, you will need to use a system based on intermediate banks (such as SWIFT) you will be charged fees, which are often unpredictable, but often range from 5-50 USD. Note that this is completely independent from exchanging money and really just the cost of moving money. When comparing different exchange services, it is therefore important to check if they offer local bank accounts in the respective countries.
    Example: As of writing (June 2020), CurrencyFair's USD bank account is located in the UK. If you want to deposit or withdraw USD from or to a bank account located in the US, you will be charged bank transfer fees (international wire). In this specific case, it is therefore preferable to use an exchange service that offers local bank accounts.

  2. Service fee. Some exchange services will charge extra service fees. This may include a transfer out fee, in which case you should check if there will also be a bank transfer fee on top or if the service fee makes sure that the full amount will arrive in the other account. Other exchange services will advertise that there are no fees and instead hide their fee in the exchange rate markup (explained next). They may also not run local bank accounts, such that additional bank transfer fees come on top.

  3. Exchange rate markup. In many situations, the service provider will give different rates for exchanging currency A into B or B into A. The difference is called spread. On large currency exchanges, where banks trade with each other, this spread is very low (range of 0.001-0.1%), but service providers may charge significantly more on top. In essence, this is just another fee that comes on top.

In summary, it is notoriously difficult to figure to properly compare different exchange services, because some fees (such as the bank transfer fees) are difficult to predict. In most situations, it is best to use an exchange service with local bank accounts, where you do not have bank transfer fees or at least you know the exact cost (in countries or systems where you have a small fixed fee). You can then focus on adding service fee and compare the offered exchange rates.

For international payments and transfers

If you are looking for cheap ways to exchange and transfer money internationally, you should consider the following recommended options. Not all services support all countries/currencies, but many common currencies (such as USD, EUR, GBP, AUD, CAD etc.) are supported by all of them. In most cases, it is best to initiate the transfer during the week, as currency markets are closed on the weekend (US time) often leading to higher spreads and thus more fees for you:

  • Cheapest longterm: Wise* (free first time up to 500 GBP). Wise offers convenient and fast international transfers and supports a large number of different currencies and countries. It is very transparent and shows the total cost compared to the current interbank rate, which you would find on Google or Yahoo Finance. It also acts as a multi-currency account. Generally, you should expect to pay 0.1-0.3% in fees. This is among the lowest services available and only Interactive Brokers is cheaper, which has more requirements and takes longer to setup. You can use above link to get your first time transfer of up to 500 GBP (or equivalent other currencies) for free.

  • Cheapest for supported currencies: Revolut* (free transfers up to certain amounts). In the free "Standard version", Revolut offers free exchanges between many different currencies up to certain monthly limits of ca. a few thousand EUR (or the equivalent in other currencies). They also offer multi-currency accounts that supports more and more currencies. Depending on in which country you open the account, you will have different access to local bank transfers (e.g., European accounts have local EUR and GBP bank details, but the USD account is based in Europe and not connected to the American ACH system). Use above link to open the account in your country of residence for free and then check the exact conditions (monthly limits for free exchanges, supported local bank accounts). Sending money from Revolut usually does not incur additional fees, but depositing to an account without local details may not be free.

  • Best large first-time transfer: CurrencyFair* (50 EUR bonus for 2000 EUR transfer). CurrencyFair has similar fees as Wise of 0.1-0.3% in fees, but it does not provide local bank accounts in the same way. Apart from this, it is very convenient and can be recommended without hesitation. It is particularly attractive when completing a first transfer valued 2000 EUR or above, where above link gives a 50 EUR bonus, which is much more than the fee, so effectively you even make some money on your first transfer.

  • Best small first-time transfer: Skrill* (ca. 15 EUR bonus). In contrast to all the above mentioned services, I cannot recommend Skrill for regular transfers, as their fees are typically higher and are around 1% compared to the interbank rate. However, if one only wants to transfer a small amount for the first time (not enough for the CurrencyFair bonus) or if one wants to transfer between currencies not otherwise supported, Skrill is still a great option. Depending on the respective currency pair, you will receive promotional credit of ca. 25 EUR (or equivalent currency), which usually is enough to completely erase the fee. Usually you need to meet a certain requirement of how much you need to transfer listed here (e.g., 15 EUR for 150 EUR, 10 GBP for 100 GBP, 40 AUD for 100 AUD, 25 CAD for 200 CAD etc.). You need to use above link, but you will only see the bonus when you enter the referral code AFTER registration (as explained under this link, which also shows the referral code).

There is a large number of other international transfer services, which I usually do not recommend, as their fees are higher and less convenient. I still list them here, as some of them may support more exotic currencies, so please check them out if above options do not work for you. Moreover, some of them may also offer occasional promotions which make them more attractive for a first-time transfer:

  • Paysend, WorldRemit, XE, Remitly, Azimo, OFX, InstaReM, MoneyGram, Travelex, Western Union, Xoom, Qonto, Paypal, Ebury, Payoneer.

Receiving international payments

In most situations, you only need to think about how to perform a transfer if you need to send money to another account (either to yourself or to somebody else). However, sometimes you are offered to choose how you would like to receive a payment. In particular, this applies to students and researchers who are invited to visit another institution or travel to some conference, for which they may receive partial or full reimbursement from a separate entity (inviting institution, funding agency etc.). The same applies to international consultants, artists and other people who travel to around the world and receive payments from different countries. While it is often the responsibility of the payee to get the money to you, the respective agreements (such as travel support for students) often offer a fixed amount, from which any transfer fees will be deducted.

In such cases, it is therefore advantageous to choose a payment method with the lowest possible fees. In most cases, this is accomplished by providing a bank account in the country of the payee and then performing the transfer on your own. Even if you do not have a bank account there, you might be able to use exchange services that offer local bank accounts in your name. Due to money laundering rules, most exchange services will not accept payments from third parties (where you would provide a generic bank account of this service), unless they create an account in your name. Many services offer such accounts in the UK, in the EUR zone and in Australia.

For large international transfers: Interactive Brokers

I strongly recommend Interactive Brokers to people moving between different countries, because it allows you stay flexible with regards to bank accounts and currencies. You can keep different currencies in your accounts, exchange at excellent rates for a very low fee of 2 USD and most currency transfers (USD, GBP, EUR, AUD and more) are free, as Interactive Brokers has local accounts in the respective countries.

If you start to invest into the stock market in one country, but then move to another country where you receive a salary, you either need to open a new brokerage account in the new country or it becomes cumbersome to transfer and exchange money of your new salary to deposit it into the old account that is still in the previous country. Interactive Brokers allows you to deposit money from many countries directly into your existing account, which you can either exchange into another currency or use directly at stock markets of the new country. Similarly, if you ever need to sell stocks to withdraw cash to your new (or old country), you can do this with Interactive Brokers in a matter of days (possibly even within one day, if you have a margin account and do not need to wait until the sale is processed).

You can read more about Interactive Brokers in general and on how to use it to transfer money internationally.

Further resources

The following list of links provides further resources to learn about different services.