By Natalie Truong
The strong dollar has been wonderful for Australians travelling overseas. People can afford more exotic and expensive holidays and spend much more freely while abroad.
But the Australian dollar’s dream run may not last forever. It recently fell below parity with the US dollar and many analysts are predicting more downside to follow, recent jitters around rate cuts saw a little of the sparkle come off. So how can you maximise the benefits while the Aussie is still relatively high? These are some tips to help you travel smarter, and make the most of your holiday money.
The Australian dollar value that you see mentioned in the media is the interbank rate. In reality, you won’t be able access that rate yourself. But banks and exchange services vary greatly in the rates they offer and how much they charge in fees, so make sure you shop around. A recent Choice report found that specialist FX providers offered much better value than major banks.
Airport exchange bureaus offer terrible value, because they know you’re a captive customer. Avoid ever changing money with them. Start planning your holiday money earlier, so you have more time to pick a good rate. Particularly with the Australian dollar looking more likely to dip than climb in the coming months, it may be worth buying your foreign currency now.
There are a host of hidden fees and charges involved in exchanging money. Credit cards in particular have hefty cash withdrawal fees and conversion fees. Some even double-charge you by converting local currencies to US dollars, then to Australian, so you pay twice.
And then there’s “dynamic currency exchange”, where a foreign retailer offers to charge your credit card directly in Australian dollars. It sounds convenient, but it usually includes a high profit margin on the exchange rate they use, and you can still be charged a cross-border fee by your credit card provider.
Pre-paid travel cards can be a smarter way to take money with you. They allow you to “lock in” rates at a favourable exchange, and tend to have cheaper fees and conversion charges. You can also hold multiple currencies on them, which is great if you’re travelling to several different countries. Some travel cards also let you load up more money online, which is easier than making phone calls from overseas.
According to a UK study by Compare Money, travel money cards gave a better exchange rate than other travel money providers, on average 8% better than exchanging at airports, 4% better than travellers cheques and 5% better than at a bureau de change.
You will need actual cash overseas, for smaller purchases, tips and so on. But remember that once stolen, cash is gone forever. Cash is also usually more expensive to withdraw once you’re over there (for example due to ATM charges) so consider getting some local banknotes before you fly.
Most people take time to plan their holidays carefully, so include your travel money arrangements when you do this. Don’t let your dream holiday end in a nightmare by coming home to a horror credit card bill or depleted bank account.
Natalie Truong is head of the private dealing desk at international money transfer service OzForex. Natalie joined OzForex in 2005 as its first foreign exchange dealer. She recently spent 3.5 years heading up OzForex’s Toronto office, before returning to her home town of Sydney. An expert in forex and money transfers, Natalie has access to OzForex’s market leading research and insight into currency movements and international payments.
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