Currency Conversion: A Case Study

On my recent trip to the US I gathered some data to try and answer the highly contentious topic of which currency conversion is the best value. The following methods of accessing cash in a foreign country are compared: converting cash in Australia, withdrawing from an ATM, and just using the credit card everywhere.

Exchange rates are from the RBA (an Australian source is used to hopefully reduce error in timezones – all receipt dates are from Australian timezones). The percentage fee is calculated based on the difference between the RBA exchange rate, and the one used by the financial institution.

From these calculations, the ATM looks to be the big winner (even with an additional ~AU$2.76 fee for the US). I suspect my method has a very high margin of error due to the fact I am unsure exactly what the official rate was (I’m only guessing based off the date). Perhaps an improved study would execute all three transactions at once – but even then there may be a daily error margin between institutions. But, if these results are correct, then I wasted $18.72 by using the currency converter. If convenience is factored in, the ATM wins again – you can use it anytime overseas (even in Santo), and generally without delay.

Perhaps it’s simply not worth worrying about…

* On the ATM transaction, the ATM itself took 2.50USD of the converted amount. This fee was not included either fee column as it is assumed to be specific to US ATM’s.

** This percentage is very different to the other Credit Card percentage, it is assumed that the bank is passing on some other per-transaction fee which I do not know about. Unfortunately, I have no way of knowing.

Note: I did get a free buy-back with the Travelex. This is where they will buy your money back, commission free, at the same exchange rate they sold it to you at (or at the prevailing market rate, whichever is better). This costs $10 (I used it free on a promotion), which is only a few dollars more than the commission, and can save you a bit of cash if the market moves against the foreign currency (useful for the US currently…). The nice advantage of this is that you don’t worry about ending up with excess cash, as I have in the past, and it removes the incentives just to spend your last cash rather than convert it back. Of course, if you do end up with no money left – then you’ve wasted $10. This is probably only worth using if you expect to have a fair bit of cash left over.