Let’s get one thing straight from the start, fees are like a nightmare that we probably don’t notice that much just because they are packed in a sneaky way. In today’s Gig economy, it is quite normal to receive and pay in different currencies, and most of us are facing the problem with high currency exchange fees.

But the problem is even bigger just because the majority of people don’t know that they are overpaying for this service. Banks and financial institutions don’t like to show you the big picture just because they profit from you. 

For example, if you head over to your mobile banking app and choose currency exchange, you rarely get an option to see the currency exchange rate. You just see how much money you’ll end up getting from a different currency. Then you have to take out your calculator and do some math problems just to find out whether or not the bank is using a standard currency exchange rate or an unfavorable one.

In most cases, particularly with instant currency exchange transactions, you are given an unfavorable currency exchange rate, which depending on the money you are trying to convert can cost you hundreds of dollars more that you don’t really have to pay.

So, what is the best way to save on currency exchange fees? Let’s find out.

Why Are Hidden Fees Such a Problem?

Here’s the thing: currency exchange isn’t as straightforward as it seems. Sure, you give money in one currency and get it in another. But what you often don’t see is the markup on exchange rates, service fees, or even sneaky little charges buried in the fine print.

For example, a report by the Behavioral Insights Team in the UK revealed that people lose billions annually to undisclosed fees in foreign exchange transactions. And let’s not even start on the frustration of realizing you’ve been short-changed after the deal is done. So, how do we avoid these pitfalls? Let’s break it down.

Understanding How Exchange Fees Work

Before we dive into tips, let’s clarify what “hidden fees” actually are. These fees typically fall into one of three categories:

1. Exchange Rate Markups: The provider offers a rate slightly less favorable than the market rate. It doesn’t look like a fee, but it effectively is.
2. Transaction Fees: These can be flat fees (e.g., $5 per transaction) or percentage-based (e.g., 3% of the exchanged amount).
3. Dynamic Currency Conversion (DCC): When paying abroad, you’re asked if you’d like to pay in your home currency instead of the local one. Spoiler: it’s almost always a rip-off.

With these traps identified, let’s move to the good stuff—how to avoid them.

1. Compare Exchange Rates

Not all exchange rates are created equal. A provider might shout about “no fees,” but don’t be fooled; they could have a lousy rate. For instance:

• Provider A offers an exchange rate of 1.30 with a $5 fee.
• Provider B offers an exchange rate of 1.25 with no fee.

If you’re exchanging $1,000, you’d get:

• Provider A: $1,300 – $5 = $1,295.
• Provider B: $1,250.

In this case, Provider A is better, despite the fee. Always check the effective cost by factoring in both the rate and fees. Use online comparison tools or apps like Wise or Xe to get real-time rates.

2. Steer Clear of Airport Exchanges

Ever heard the saying, “Convenience comes at a price”? Airport kiosks are the perfect example. Their rates are typically inflated, and fees are high because, well, they know you’re in a hurry.

Pro Tip: Plan ahead. Exchange currency at a bank, online platform, or through a reliable app before you travel.

3. Use Multi-Currency Accounts

If you’re frequently dealing with different currencies, a multi-currency account is your best friend. These accounts let you hold multiple currencies and often come with competitive exchange rates.

We now have many online financial platforms like Genome that allow you to initiate an instant currency exchange with favorable rates. They are also quite transparent, by including a calculator where you can see rates and how they have moved in the past 30 days.

4. Say No to Dynamic Currency Conversion (DCC)

Picture this: You’re at a restaurant abroad, and the waiter asks if you’d like to pay in your home currency. Sounds convenient, right? Wrong. Dynamic currency conversion often adds a hefty fee and uses a poor exchange rate.

What to Do: Always pay in the local currency. Your bank or card issuer will likely offer a better exchange rate than the merchant.

5. Watch Out for Additional Charges

“Zero commission!” “No fees!” Sounds great, but don’t let the marketing fool you. These providers often bake their profit into less favorable exchange rates. Before committing, ask for a breakdown of all costs.

6. Leverage Fintech Solutions

Traditional banks and exchange services often charge higher fees because of their overhead costs. Fintech companies like Genome are disrupting the game by offering lower fees and better rates. 

Real-Life Example: How Much Can You Save?

Let’s take a hypothetical scenario. Imagine you’re transferring $5,000 from the US to Europe. Here’s how the costs stack up:

1. Traditional Bank: Exchange rate: 1.10; Fee: $50.
   • You receive: €4,455.
2. Fintech App: Exchange rate: 1.12; Fee: $10.
   • You receive: €4,490.

That’s a €35 difference. Multiply this by multiple transactions, and you’re looking at significant savings.

7. Plan Your Timing

Exchange rates fluctuate. If it’s not an emergency, monitor rates over time to exchange when they’re favorable. Apps like Xe can send you alerts when rates hit your desired level.

So, there you have it. Saving when doing a currency exchange is easy, you just need to follow some steps. Yes, it might sound like a lot of work, but at the end of the day you are saving money, and that’s the most important thing.