Saving Money On Foreign Transaction Fees
You’ve saved hard for your next overseas trip, making sacrifices along the way to make your dream happen, so why get stung with unnecessary bank fees and terrible exchange rates? Nothing erodes your travel funds faster than some of the terrible bank exchange rates or getting slogged a 2.5% ‘overseas’ transaction fee each time your buy something or withdraw money using your debit or credit cards.
Over the years we’ve figured out what’s worked best to keep these fees down and make our travel funds last longer. There have been some changes along the way but for the past 5 yrs or so, we’ve found the Citibank Debit Card and OFX.com.au to give us the best bang-for-buck. Both these companies are international but it would be worthwhile checking out local alternatives in your country.
Citibank Debit Card
It’s a debit card so there are no annual credit card fees. There are no international transactions fees, none, nil, zilch. It's pretty hard to find credit cards with no foreign transaction fees. Which means you won’t get hit with that surprise 2.5% ‘overseas’ transaction fee. The added bonus is that by using a Citibank ATM (or one of their partners) you won’t get charged an ATM fee. But the biggest saving, and this is a huge one, is the exchange rate.
Citibank offers very little in the way of a buy/sell spread. In other words, it’s very, very close to the official exchange rate, sometimes within 0.5%. The main Australian banks don’t even come close. Their ‘spreads’ are often up to 3-5% from the official rate. As far as we've found, the Citibank Debit Card offers the best currency exchange rates around.
Let me give you an example of a $USD transaction, assuming a 4% spread. You go out to a nice dinner, grab a bottle of wine and the bill comes to $USD88. You add a 20% tip so the total you pay is $USD105.60. With the official rate quoted at $AUD1.00 = $USD0.745, it will cost you:
- $AUD151.38 ($USD105.60/0.715 = $AUD147.69 x 2.5%) with one of the big 4 Australian banks.
- $AUD142.70 ($USD105.60/0.74) with Citibank.
Wow, almost $10 in one $150-ish transaction or close to 6%! If your holiday ended up costing you $USD7000, and you used your Citibank Debit Card for all transactions, you’d end up saving $AUD575. And that’s not taking into account possible ATM fees.
Saving $575 just by using your Citibank Debit Card instead of your regular bank credit card - to us that's a no-brainer. And we don't get any kick-backs from Citibank for recommending them - we just like the card and haven't found a better product that suits our needs!
Transferring Larger Amounts - send money overseas Using OFX.com.au
When we did our 9-month stint in North America last year, we needed to transfer some money to buy a car. Using a bank-to-bank transfer meant we would get hit with terrible exchange rates and additional fees, including foreign exchange commissions. We’ve used OFX (it used to be called OzForex) many times in the past (USA, UK, New Zealand) and have been very impressed by the money saved and the ease of transaction. Same deal as Citibank - excellent exchange rate, close to the official rate and no foreign transaction fees (if more than $AUD10000, otherwise it's $15. We're lucky because I'm part of Optometry Australia and they have a deal with OFX where all fees are waived. Please see the note below if you're interested in using OFX and want zero fees). You’ll save between 3-5%, so when you’re talking $10000 or more, that’s pretty significant.
As far as we know, OFX seems to be the cheapest way to send money overseas. There are other foreign currency exchange companies which should all offer much better deals than your standard bank - just go with whoever you feel comfortable with. We've used OFX since the mid-2000's and are confident in their processes.
How does it work with OFX?
- Set up an account with them. Very easy, similar to a bank account. OFX just want to make sure you are who you say you are and you’re not into money laundering.
- Once set up, log in, enter the amount you wish to transfer and add your recipient. OFX will either email or call you to confirm the transaction.
- On confirmation of the transaction, they’ll send you details to either BPay or direct deposit into their account. If you pay OFX straight away, it usually only takes 2-3 business days before the funds are available in your (or the recipient's) overseas account.
A pretty easy way to save 3-5%!
N.B. We've partnered up with OFX which means if you register with them using this link you'll never get charged fees when making a transaction. We also get a little kick-back from OFX for recommending them but keep in mind we only ever recommend things that we like, have used in the past and continue to do so.
There you go - a couple of simple ideas to save you precious travel money without causing any grief or sacrifice. As Dire Straits would say, ‘Money For Nothing’!
We’d love to hear if you know of any other simple tricks to save money when travelling. If you have any tips, please leave a comment below!
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