You probably know all about the ATM fees your bank charges. But you may be in for a surprise if your bank adds an additional 3% “foreign exchange” fee on top of that. That’s pretty common so it pays to check the list first and go with the bank that has competitive rates. The same applies to your credit card. Some credit card companies charge as much as a 3% adder for overseas purchases while there is at least one company that charges a 0% adder and gives the best available exchange rate on the day of purchase.

In many countries using your ATM card is convenient, safe and you receive a better exchange rate than cash or travelers checks. In Thailand, for example. ATMs are plentiful throughout the country, even in small cities, and there is no local ATM fee charged. Changing cash or travelers checks is convenient only in heart of the major tourist destinations and only during opening hours of the exchange windows. Elsewhere you’ll need to visit a bank branch during normal banking hours. So use your ATM. But check this list first:

The fees charged by the first three banks in this list are from my own recent personal experience. I got burned by the Citibank 3% fee when they changed their fee structure in late 2006. When you make a sizable withdrawal that 3% fee ends up being far more than any normal ATM fees. WaMu (that’s the online banking division of Washington Mutual) has a competitive 1% foreign exchange fee. I call this the “standard” fee because it is the fee that Visa international charges on foreign money transactions and the banks charge this fee to recoup that cost. Interestingly, although the Fidelity representative I spoke with said that this 1% fee is included for ATM withdrawals from a Fidelity core account I have made many withdrawals and there is no fee. Is this a mistake? Probably not. Perhaps it is related to the type of account, such as a Premium Services account. The other notable point is that many ATM withdrawals from Fidelity and WaMu within a few minutes of one another always show a 0.3% better exchange rate from Fidelity. So somebody seems to be “skimming” on the WaMu withdrawals, although it’s pretty small.

Note that most banks list the “foreign exchange fee” as a separate item on your statement so it’s easy to see how much they are charging. If your bank doesn’t then it’s probably buried in a reduced exchange rate so check the rate they are giving you carefully. Since exchange rates fluctuate it is sometimes it is difficult to confirm the exact amount of the fee.

Ok, so when you are traveling use your ATM card but be sure to pick the right bank to avoid getting burned on those fees. Remember, there are two types of fees your bank might charge, “ATM fees” and “foreign exchange fees”. They both can add up so check it out.

Now for credit cards the story is similar. Different issuers charge different fees on overseas purchases made with your credit card. But the fees on credit card purchases are lumped in with the purchase price so it’s more difficult to determine exactly what they are. Here’s what my research has uncovered:

Again, the fees for the first three credit card issuers in that list are from my personal experience. What seems sort of amazing is that CapitalOne somehow absorbs the 1% Visa money exchange fee. So purchases I have made on the same day with my Chase Visa and my CapitalOne Visa show a 3% difference in the exchange rate.

There is another little trick that you need to watch out for when you make credit card purchases. Some merchants will offer to charge your purchase in your home country currency rather than the local currency. From what I have experienced and read this is always a rip off. They’ll give you a much lower exchange rate than Visa will when the transaction books. You’ll usually get this offer from large merchants who have many foreign tourists, including the large private hospitals. It’s easy to avoid. Just be aware of it, decline the offer, and be sure the purchase is charged in the local currency.

Offshore versus Onshore Exchange Rates

Here’s one more important tip about exchanging money. This definitely applies to Thailand and may apply to some other countries. There are really two exchange rates. The so-called “offshore rate” is what you will get if you purchase Thai money outside of Thailand. This rate is about 10% lower than the “onshore rate”. That’s huge, a 10% difference. So wait until you arrive in Thailand to exchange money. You are getting ripped if you do it at your departure airport. There are exchange booths and ATMs all over the airport in Bangkok so you’ll have no trouble changing money when you arrive no matter what time it is.

This issue can be particularly important if you are transferring money by bank wire from a U.S. bank to a bank in Thailand. A lot of expats who are purchasing retirement homes in Thailand are finding this out the hard way. Typically the U.S. bank is going to give you the offshore rate and you are going to get ripped off big time. But the picture is a little fuzzy now because there have been reports of people doing bank wires from U.S. banks to Thai banks and receiving the onshore rate. In particular, a recent bank wire from WaMu to Bangkok Bank was completed at the full onshore rate, and on top of that there were no fees on either end. That’s worth investigating if you are in that situation.

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Author’s note: Since this article was published in June 2007 a number of things have changed. The onshore and offshore conversion rates have converged, most Thai banks have started charging a rather large ATM fee, and there is a class action suit against credit card companies over their foreign transaction fees. There could be follow up articles on each of these topics.