Summary: Over a lifetime, most people will pointlessly donate thousands of dollars to financial service intermediaries because they don't use the cheapest ways of exchanging currency or making payments overseas.

In this post, I will maintain a list of the cheapest methods available to Australians and also note solutions to the most common mistakes consumers make.

Gain: Saving $100/yr on currency conversion and overseas payments for 40 years will amount to over $12,000 (5% interest rate).

Details:

1. When making payments in a foreign currency online, use the cheapest method of converting currencies available

For Australians, that currrently means using a 28 Degrees Mastercard credit card or Citibank Plus Bank Account with Visa debit card - both of which have zero fees on currency conversion.

In comparison, a standard Australian bank credit or debit card will have fees of around 3% just on the currency conversion.

Note that the 28 Degrees card charges 3% on cash advances so use the Citibank Plus debit card for cash.

2. When obtaining foreign currency overseas, use the cheapest method of converting currencies and accessing ATMs

For Australians, that currrently means using the Citibank Plus Bank Account with Visa debit card. It is the only way of paying no currency conversion fees AND no Citibank fees for international ATM withdrawals.

It does mean you need to use Citibank ATMs (including in many USA 7-Eleven's) or fee-free Citibank-associated ATMs. (See: Citibank ATM world network)

3. When transacting a foreign currency payment (whether ATM, terminal or online) never accept an offer during the payment process to convert the currency to your local currency

By default when paying a foreign currency amount with a credit or debit card, the currency conversion is done automatically at set Visa/Mastercard rates plus any fees charged by your card provider. Thus any transaction prompt (e.g. at an ATM or terminal) offering to convert the payment (e.g. US$250) to your local currency will override your card's conversion rate and use a very high conversion fee instead.

4. Avoid default foreign currency payments (e.g. Paypal) and use your fee-free alternative

Many websites will offer a default payment method that has high conversion fees (e.g. Paypal conversions).

You need to avoid these and pay using your preferred fee-free credit/debit card (e.g. 28 Degrees or Citibank Plus).

Also note that, if desired, you can link your Paypal account to a fee-free debit card like the Citibank Plus card. (You can't link it to a credit card like 28 Degrees). However, you need to ensure the desired linked card is set up as your primary payment account.

That way you can pay via PayPal with no foreign conversion fee providing you select to pay in the foreign currency using your linked fee-free debit card.

See: OzBargain - Cards with No Overseas Transaction Fees

5. Use the cheapest method to send currency to an overseas bank account

A typical Australian bank will charge a transfer fee of $20-30 to make an international payment as well as around 3% in conversion fees.

However, there are now much cheaper methods of sending money overseas. The current cheapest is CurrencyFair which supports many major currencies and has a conversion fee of only $4 plus less than 0.4% of the transaction value.

Let's say you worked in the UK for a couple of years and wanted to send your savings of GBP20,000 back to Australia. Using CurrencyFair you would save around $1,011.


6. Don't use currency exchange booths, pre-paid travel cards, over-the-counter banks or travellers cheques

Most people aren't diligent enough to set up completely fee-free ways of accessing foreign currency or making foreign payments and so end up resorting to the more common methods like currency exchange booths and pre-paid travel cards.

But regardless of any promises, none of these other methods are ever cheaper than 3% of the transaction value. And many can be as expensive as 10-20%, especially for smaller transactions.

In fact, many pre-paid travel cards are so ridden with various fees that they can ultimately cost a ridiculous amount to use. There are at least 10 different fees noted in this article: Canstar - Travel money card fees and charges to watch out for


Further Info:

OzBargain
> Cards with No Overseas Transaction Fees

Whirlpool
> Knowledge Base - 28 Degrees Mastercard

Citibank Australia
> Travelling overseas