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23 Nov 2021

4 foreign exchange secrets to know before travelling

By Damon Frith, wealth editor for Citi Ready to travel again? Don't throw your money away when exchanging currencies. There are simple solutions.

After nearly two years of exploring the world via the internet or staring with nostalgia at our Facebook timelines international travel is back on the agenda.

However, it's a lot more complex than it used to be, with countries implementing a range of bespoke COVID-19 measures to allow entry or exit across borders. The rules are also changing regularly, so patience and attention to detail are vital ingredients to international travel currently.

For starters, airlines are expecting you to arrive at least four hours before departure for international flights, and make sure you have a couple of pens handy - there are a lot more forms to fill in both digitally and in paper form.

Also, make sure you have the right vaccination certificates, they are different to the ones you use to get into a restaurant or pub in Australia, but are also available from the Medicare section of the myGov website.

To make your travel easier, be prepared and do your homework on the countries you are visiting. It's likely you will need to have multiple COVID-19 tests at your cost, and have a result no later than 72 hours before travelling. Hopefully they will all come back negative but be aware of what will be required of you if you do test positive in another country. It is likely you will be required to have travel insurance that covers COVID-19 related issues.

There is no question international travel has got more complex, but as of late November over 500,000 Australian's had booked an international flight, as reported by ABC. The sheer number of people resuming travel plans globally will in time compel governments and agencies to adopt more standardised processes for managing pandemic related issues. 

Of course, if your leaving the country, another item on your list will be currency exchange (FX). That's an area where we have a lot of expertise, so we have some tips to help make this part of your journey easier.

1. Plan around currency volatility

Leaving exchanging currency to the last minute leaves you at the mercy of notoriously unpredictable currency fluctuations. A sudden shift in commodity prices or a change in direction from the Reserve Bank of Australia or US Federal Reserve can move currency markets several percentage points overnight, and potentially leave you with a hole in your budget you hadn’t planned for.

Keep an eye on how the Australian dollar sits in comparison to the country you’re visiting, want to invest in or virtually shop in regularly, and exchange currency when the rate is favourable.

This can be done through the traditional method of visiting a foreign exchange bureau or more conveniently through the use of a multi-currency account. Citi’s offering, the Global Currency Account, lets you hold money in ten currencies and gives you the flexibility to transfer between them, meaning you can take advantage of favourable rates. It’s linked to a debit card and knows your location, so you can pay in the correct currency via the card when you travel, or withdraw money from the card when you are ready. 

Similar accounts exist at other International banks and there are fintech players like OFX and Transferwise as well. Local banks do offer comparable products, however these normally come with higher fees and wider currency spreads. For those unfamiliar, the ‘spread’ is the difference between the price at which you sell the currency (bid) and the price at which you buy the currency (ask).

2. Factor in explicit and implicit fees

This ties us into the next point. Ensure you understand explicit and implicit fees when make exchange currency. When talking about FX, explicit fees are typically account, ATM withdrawal and card load fees, as well as telegraphic transfer fees. Implicit fees are generally the foreign currency spread between bid price and ask price. A wide spread indicates you may be paying too much.

Unfortunately, many banks are guilty of promoting low explicit fees and assume people won’t calculate the spread and work out the deal is not favourable. They can do this because foreign exchange is still an area many struggle to understand, and part of this is because of the jargon involved (like the ‘spread’, ‘bid’, and ‘ask’ explained earlier).

3. Stay sceptical and avoid the traps

A number of other traps exist that people fall into time and time again. These include exchanging money at the airport. A 2018 study by News Corp and The Currency Shop showed that travellers can lose as much as $350 by exchanging $2000 at the airport. While it might be convenient – it’s going to cost you.

Another way travellers get confused is when they are asked whether they want to pay in their own currency, or the currency of the country they are in. If you pay in your own currency, the merchant or ATM operator will charge you a foreign exchange fee, at a rate they determine.

Prepaid travel cards can arguably also be called a trap, as while they might be cheaper than cash they often come with a range of fees, like when you load the card with a foreign currency, use it at an ATM or close the account. It’s important to consider how these different fees will impact your budget overall before deciding if you want to use one.

4. Use technology to your advantage

The FX space is becoming more competitive. Fintech players like Transferwise, Currency Fair and Worldremit specialise in small payments for individual customers. Because they have an online business model, they have low overheads and offer competitive rates.

International banks have stepped into the ring to compete too. The rates on Citi’s Global Currency Account are highly competitive and linked directly to a Citi debit card – meaning users can switch between currencies instantly via their mobile app and pay with their card when travelling, with zero ATM fees charged by Citi when using local currency.

Ultimately, the take-out for those about to head off on an overseas adventure is to do your homework before you go, and be wary of the money traps you can fall into. Hopefully, disruption in the field of FX will only continue to increase, and providers will be forced to offer more options that make it easier for consumers to go overseas and spend like a local.

 

Discover more about the Citi Global Currency Account > 

Any advice is general advice only. It was prepared without taking into account your objectives, financial situation, or needs. You should also obtain and consider the relevant Product Disclosure Statement and terms and conditions before you make a decision about any financial product. Investors are advised to obtain independent legal, financial, and taxation advice prior to investing. Past performance is not an indicator of future performance.

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