YucaLandia
Nov 15, 2011, 1:29 PM
Post #22 of 28
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Using a credit card will always give you the worst excahnge rate anywhere in the world.
Moisheh
sioux4noff : We did a little experiment one day - got money out of an ATM, charge something on our credit card, and looked at the bank's posted exchange rate. The credit card purchase actually got the best rate, ATM was second. But that was a purchase on the credit card, not a cash advance.
So as always, your mileage may vary.
... The OP refers to a current exchange rate. Where did you find that rate? None of us have enough $$ to get the published rate. ...
Moisheh
At face glance, this combination of statements seem to conflict with each other, but there are few vagaries of the market that might explain these perceptions:
The exchange rates printed in newspapers and posted on good sites like xe.com are the floating official rates that are the midpoint of the currency markets purchases and sales of a currency. Buying and selling pricea on a currency are not the the same, because the bank or currency exchange needs to be paid for providing the service. Do we expect McDonalds to sell their hamburgers at cost?
The next reality is that large $$ transactions cost roughly the same to process as small $$ transactions, so, the rate you get depends on how much money you exchange. Here's a simplified example:
If a bank needs $2 of effort/overhead to process a transaction, then when you change $100 at a bank and I change $1,000 at the same bank at the same time, I will get a better rate, because the bank's $2 exchange fee is 2% of your $100 and the banks $2 exchange fee is just $0.2 of my transaction.
This means that careful consumers who want the best overall exchange rates will:
1. Pick credit card companies that do not charge set fees or a % on your foreign transaction.
2. Use the credit card to make all possible international purchases,
3. Check with the merchant to see if they add fees/charges for using your for using a foreign credit card.
4. Make large charges only on days or periods when the exchange rates are to your liking.
5. Ask to talk with the bank manager or currency exchange manager to request a better (the best) rate when making large exchanges: We typically shave 1% and sometimes 1.5% off the best advertised rates.
6. You can actually get the mid-market rate if you are clever and observant and can speak a little persuasion (Spanish or English): If you can spot a someone in the line at the bank, and you see that the person has enough cash in hand to cover your exchange amount - and if they are exchanging money for your currency, you can offer to exchange with them at the mid-market rate. I have done this several times, and both buyer and seller walk away happy.
(We need US dollars and I sell pesos, so the expat gets the pesos they want and I get the dollars => win-win)
Since large credit card companies like Visa process/exchange $10's of millions of dollars per day, as the biggest customers in the daily exchange markets, they get the best rates. Regardless of Moishe's perception, by using a fee-free credit card, you get to piggy-back on the best rates of the day, (unless the intra-day rates are fluctuating wildly). You will never get the day's best mid-market rate, but you can come very close with this approach.
This last rule can have some exceptions: Many merchants (in the US and around the world) hold their customer's credit card transaction "receipts" for 1 business day to 3 business days before entering/processing/submitting them to the credit card company. This delay can actually cause your Friday's credit card purchase to be posted to the exchange markets as late as the following Wednesday...
This means that you can sometimes come out a big winner or a big loser (by a few %) when using your credit card vs. an ATM - because ATM banks/companies almost all post their transactions by 12:00 PM of that same day (Friday in our example). You get better than the Friday posted mid-market exchange rate, if the mid-market currency rates change in your CC's favor between Friday and Wednesday => Woooo Hoooo !!!
If the mid-market currency rates change against you and your CC purchase between Friday and Wednesday
=> Waaaaaaaah !!!
So, if you rely on individual expat stories on internet forums to form your opinions, you'll usually get a scatter-gun blast of opinions: some diss-ing credit card use and swearing-by some currency exchange or ATM, while others swear-at their currency exchange or ATM (particularly if they get nicked for ATM fees, bank fees, and international usage fees).
Hope this helps explain some of the apparent contradictions and irregularities,
steve
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Read-on MacDuff
E-visit at http://yucalandia.wordpress.com/
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