Guide: Ordering Foreign Currency vs. International ATM Withdrawals!

I spent so much time searching for a comparison between the two that I have reached the point where I can finally provide the following information, which hopefully will be useful to any U.S. citizens who are deciding whether to convert USD before traveling or use their debit card in a foreign ATM!  First lets consider the following:

1.  Fixed and Variable costs

With foreign conversion you tend to run into a fixed costs (ATM surcharges, shipping fees, etc) and variable costs (FX fee, Visa/MC fee, buying/selling rates).  As you can imagine, this means you tend to get less value out of smaller dollar amount transactions, and vice versa. 

2.  Foreign transaction fees

Many people aren't even aware of this, because it can be hidden by your financial institution.  Whenever you use your debit or credit card and make any purchase/withdrawal either in a different currency than USD, or outside of the United States, you tend to pay a conversion fee.  Most major banks charge around 3%, whereas your smaller credit unions tend to be in the 1-2% range.  There are even some institutions which waive the foreign transaction fee entirely.

3.  Visa/Mastercard's conversion rate

The Visa/Mastercard rate is between 0.0% to 0.5% worse than the interbank rate posted on Google and other websites.  Today, for Visa, the rate for withdrawing KRW with a USD debit card is about 0.12% lower than the market rate.  Meanwhile the rate for withdrawing CAD from with a USD debit card is about 0.22% lower than the market rate. (http://usa.visa.com/personal/using_visa/consumer_ex_rates_us.jsp)


The following compares USD to KRW (money used in South Korea) and USD to CAD (money used in Canada) in the amounts of $100, and then $1000 converted, using ForEx conversion, debit withdrawal with typical fees, and debit withdrawal with reduced fees.  Data is based on today's rates using Google reported market rates, 07/28/2013, and based on Bank of America's foreign exchange rates for today, which I have found to be very comparable if not better than other major U.S. bank rates. The ForEx conversion assumes a $7.50 fee if the quantity ordered is less than $1000 USD.  The typical debit withdrawal method uses a 3% conversion fee and $5 domestic ATM fee, a $5 ATM surcharge fee, and assumes the Visa/Mastercard rate is 0.5% less than the interbank rate on Google.  The reduced fee debit withdrawal method only assesses the $5 ATM fee from the machine itself and the 0.5% Visa/Mastercard conversion.

  *The Total KRW and CAD columns include all associated fees.

ACU stands for Associated Credit Union.  They offer a debit card with no international transaction fees and no fees for up to four ATM withdrawals per month.  They are based out of Georgia but allow any U.S. citizen to join.  There are other banks that offer the same level of service, but I decided to go with ACU.

As you can see, even with a bank that charges a 3% conversion fee and $5 access fee abroad, in Korea you still are better off with a debit withdrawal compared to ForEx conversion.  You may only save a bit on a $100 conversion, but you save over ₩30,000 on a $1000 withdrawal.  For CAD, however, you actually lose a bit on the $100 debit withdrawal, and only save about $7 CAD on the $1000 withdrawal.

The true potential savings can be seen if you utilize a financial institution with no foreign transaction fee and preferably no domestic assessed ATM fee, like Associated Credit Union for example.

In that case, and compared to ForEx conversion, you will be saving over ₩9000 on a $100 withdrawal, and over ₩68,000 on a $1000 withdrawal.  With CAD, you will save $7 CAD on a $100 withdrawal, and over $43 CAD on a $1000 withdrawal.

Important Notes:

A debit card isn't fool proof, it is always advisable to have backup solutions.  On one hand, you don't want to carry $1000 in a wallet that could be lost or stolen, but it is advisable to have multiple cards and bring some USD or foreign currency to minimize risk.

Buying foreign currency from a large bank will always give better rates for the more commonly traded currencies.  It is why the above data shows you will lose money using your debit card to pull $100 in CAD from a typical fee bank versus taking the ForEx route.  I have noticed that for a currency like CAD, Bank of America's rate is typically 3-4% worse than the market rate, whereas for KRW, their rate is usually 7-8% worse.  But once you are getting above $200+ USD equivalents, I believe the debit withdrawal method will always be superior.

Avoid dynamic currency conversion.  This is when either an ATM or merchant tries to charge you in USD, doing the conversion for you.  That conversion has a hefty fee built into it, and you will end up cancelling out any savings you are getting from using your card in the first place.

Understand that withdrawing money from a credit card will always be considered a cash advance, and your financial institution will most likely charge you a fee of at least 3%, and the balance will begin accruing a higher interest rate with no grace period.

I guarantee this posting is not error free, but hopefully it sheds some light on the topic for you and will help save you some ₩ or other currency in the future :).  Happy travels!