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In general, it’s always best to pay for your expenses abroad with a credit card, since you’ll benefit from the best exchange rate when travelling (the rate of the day), and you can also earn rewards points.
However, most credit cards will add a 2.5% surcharge to the exchange rate; the conversion fee. To remedy this inconvenience, arm yourself with a credit card that has no conversion fees!
However, in many countries where “cash is king”, it is not always possible to rely solely on our credit cards; it becomes unavoidable to carry cash and exchange your currency.
Additionally, in some places, the merchant is within his or her rights to impose additional fees when paying by credit card; for example, in Australia.
The term “best exchange rate” is often used to refer to the most economical rate, the one closest to the rate shown on comparison sites like Xe.com.
It’s important to understand that there is one exchange rate when buying currency and a different rate when selling it. This is why you often see two exchange values at a bank or exchange bureau.
Finally, the Mastercard and Visa networks also have their own rates for purchases. These rates are displayed on their websites, and it is possible to check previous rates and see if your card charges any conversion fees.
Before we look at the different types of currency withdrawal, let’s take a look at dynamic conversion.
When you pay at a merchant with your credit card, the payment terminal may offer you to pay in local or Canadian currency.
ALWAYS choose to pay in local currency: in this case, the conversion to Canadian currency will be made at the best daily rate of Mastercard, Visa or American Express. A 2.5% conversion fee will be added (unless your card is among those that do not charge a conversion fee).
However, if you choose to pay in Canadian currency, the merchant’s exchange rate will apply PLUS all the other fees usually charged by your credit card.
Here’s an example of payment in Europe with the Scotiabank Passport Visa Infinite + Card. For a purchase of EUR 283.80, the merchant’s payment terminal offers to convert the amount into Canadian dollars at CAD 384.55, including a 3% conversion fee:
On the transaction date of July 31, 2022, the Visa currency converter indicates that the transaction was for $372.99. You will have paid the merchant a conversion fee of $11.56!
There are several ways to access money in local currency. These methods each have their advantages and disadvantages.
ATM withdrawals :
Currency exchange :
The easiest way is to withdraw your money with a debit card; you’ll get the best exchange rate (daily rate), but this will be increased by a 2.5% conversion fee.
Usually, all Canadian banks are linked to the major international networks such as Interac, Plus, Maestro and Cirrus. You’ll find these logos on the back of your card.
The best way to save on withdrawals abroad is with a prepaid card. Some cards will even allow you to load the card and then make a withdrawal in foreign currency without having to pay the conversion fee (or a lesser fee).
Like the debit card, it’s one of the best exchange rates for travel (daily rate). It is in fact the preferred way because you will avoid the conversion fees.
Notably, the Wise debit card, affiliated with Visa, is a reliable solution for making withdrawals in currencies other than your local currency. Formerly known as TransferWise, Wise is a platform for international money transfers that stands out for its low fees on foreign currency withdrawals.
Once you have created your Wise account and obtained your debit card, you can load your account with Canadian dollars and withdraw money in the local currency of the country you are in. Conversion costs are generally much lower than for conventional credit cards. In France, for example, the fee is 0.53%, while in Morocco it is 1.53%.
Finally, another option is Wealthsimple Cash, an integrated financial ecosystem that combines a checking account, a high-yield savings account, and a reloadable Mastercard. For frequent travelers, this card offers an attractive alternative to avoid conversion fees associated with foreign currency transactions.
The Wealthsimple Cash Mastercard does not charge fees for ATM withdrawals globally, although some ATMs may apply their own fees.
The EQ Bank Card, affiliated to Mastercard, enables you to make withdrawals abroad without conversion fees, using the network’s daily rate. Linked to a high-interest account, it offers a simple solution for accessing funds when travelling, while generating up to 4% interest on the balance (subject to conditions). Transfers from the account are instantaneous and free of charge, and teller fees are reimbursed in Canada (and abroad, only local operator fees apply). In addition, deposits are protected by CDIC up to $100,000.
For more details, read our full EQ Bank Review.
If you’re not sure which one to choose according to your profile and needs, take a look at our prepaid card comparison.
Using a credit card for ATM withdrawals can be tricky, as these transactions are considered cash advances. Therefore, careful planning is necessary to make this option cost-effective; focusing solely on obtaining the best exchange rate might not be wise if you end up paying additional fees in return!
For purchases, you have a grace period where you don’t have to pay interest; you generally have up to 21 days after the statement closes to pay your balance without incurring interest.
For cash advances, interest is charged immediately after the transaction. So, to save on travel withdrawals, it’s imperative that your balance is in the black (i.e. you don’t owe any money to the bank).
It’s also important to know that when you pay back an amount on your credit card, that money comes first to pay for your purchases. So, if you want to make a withdrawal and you have purchases to make as well, you’ll need to take them into consideration.
Here is an example of how to avoid paying interest charges when withdrawing money with a credit card:
It is indeed a bigger headache to use a credit card, so why do it? The main advantage is avoiding the 2.5% conversion fee. For larger amounts, the difference is significant, as you avoid these conversion fees and get the best exchange rate when travelling.
Of course, your bank can sell you foreign currency. In fact, you can place an order from your online profile.
However, this is not always the best exchange rate when compared with Mastercard and Visa rates. Then you have the option of picking up your money at the branch or having it delivered to your home for a fee. The amount will simply be deducted from your account.
Finally, are currency exchange bureaus a good option? In fact, exchange rates vary enormously. Some places offer a better exchange rate than your bank or a comparable rate, but you could also find very disadvantageous rates.
To obtain foreign currency through exchange bureaus, it’s important to shop around and compare; one place might offer a better exchange rate for one currency, but not for another!
Finally, exchange bureaus located at airports and tourist areas should be avoided if you aim to get the best exchange rate while travelling.
When you make ATM withdrawals, you usually have to pay:
When it comes to your bank’s fees, you can sometimes save on withdrawals with certain packages. However, when you’re abroad, the ATM you’ve chosen may also charge you a withdrawal fee.
Here’s a table of the foreign banks we’ve identified that don’t charge (or charge very little)! With a credit card like the Scotiabank Passport Visa Infinite or the Wise Card, you’ll get the best exchange rate and the most savings with these banks!
Then, for Tangerine customers, you can save on withdrawal fees at banks in the Global ATM Alliance network. Withdrawal fees are even waived at several banks: Bank of America, Barclays, BNP Paribas, Deutsche Bank, Scotiabank, and Westpac.
Finally, Tangerine’s withdrawal fees are very competitive when compared to other banks. However, you will have to pay a currency conversion fee.
To open a Tangerine account, click here.
So, which method should you choose to obtain foreign currency, get the best exchange rate while travelling and save on withdrawal fees?
It depends! Each method has its pros and cons. It’s up to you to decide what’s best for your situation. To help you visualize the figures for each option, here are some examples:
In this example, you get the best exchange rate by withdrawing from an ATM using a credit card with no conversion fee or a prepaid card.
In this example, you get the best exchange rate by withdrawing from an ATM using a Tangerine client debit card.
We can see that the savings are much greater when the sum is higher, with a better exchange rate despite transaction fees. Tangerine allows you to save money at partner locations as well.
So, as always, do your calculations and assess your preferences to save money while traveling!
Savings this way:
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