If you’re one of the nine million Australians who travelled overseas last financial year, you’ll know that foreign exchange rates can play a big part in your holiday. Whenever you spend money overseas – be it in US$, euro, pound or yen – you’re running foreign exchange risk, because you’re converting A$ into those currencies. If the A$ falls against those currencies while you’re travelling, you're losing spending power.
Exchange rates are changing all the time in the 24-7, highly liquid currency markets. They’re affected by interest rate levels in different countries, economic growth figures and geo-political events, and any of these factors can show up very quickly, and cause almost instantaneous gyrations – which could affect the cost of your holiday while you're on it.
You can take foreign cash with you, travellers cheques, use a credit or debit card, or a pre-loaded travel card, but you can't escape paying a fee for the foreign exchange.
Banks and money changers can charge a wide spread for changing A$ into other currencies, or simply quote exchange rates that favour them. The worst offenders can be hotels and retail ‘bureau de change’ counters at the airport: if you change money at these places you may be charged excessively – you can lose 10-15% of your money through bad exchange rates and fees.
Credit cards can be very handy for overseas travel, being readily accepted, and you benefit from having your FX conversion struck at your bank's exchange rate. But many credit cards will charge extra for international transactions, although there are some that don’t charge international transaction fees. Other fees and charges – for example, ATM withdrawal charges, or cash advance fees, may still apply. If you do use your card for a cash advance, you may be able to avoid cash advance fees by pre-loading your own money onto the card. And remember that if you haven’t told your bank of your travel plans, it may block your credit card if it sees it being used in a new country.
The most recent product, the travel card, can be an easy and secure way to manage the costs of foreign exchange while travelling. With a travel card you load money onto them before you head overseas, in the currencies of the foreign countries you're visiting. You pay a fee for the foreign exchange when you do that – again, at the bank’s exchange rate – but the upside of a travel card is that once you've loaded the foreign currency on the card, it isn't subject to exchange rate fluctuations, so in that way, it’s just like cash.