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When it comes to purchasing travel money for an overseas trip, people usually wait until the last moment before they act on it.
They think that the most cost-effective way of buying dollars before a trip is through a travel agent or by going to your local bank or Post Office. However, if you want to save money, timing is the key. You must be wise enough to think about the purchase a few weeks before you fly off.
So, when should be the perfect time to purchase US Dollars before going for a trip? Here's what you need to know when buying travel money:
What is travel money?
Regardless of how you plan to pay for all the things while you're in the US, it's best to have some travel money in the local currency of the place you're travelling.
That way, you'll have some cash for essentials like food, transportation, drinks, and many more. If you're going to the United States of America, travel money refers to the currency you use during your stay overseas.
However, it's not highly recommended to bring huge amounts of cash so you can avoid any potential risk that comes along with carrying money. Aside from cash, you may also want to consider other ways of paying for things on your international trip.
What is an exchange rate and how does it work?
If you're planning to travel abroad anytime soon, you'll more likely have to deal with the term "exchange rate." In addition to travel money, you also need to know everything about the foreign exchange rate before your scheduled travel.
Here's what must learn about it, including how it works.
In its simplest term, a foreign exchange rate refers to the value between two involved currencies. In short, it's the amount of one currency against the other. For example, when travelling, the rate is calculated by the amount of US Dollar you can buy with your local currency.
On the other hand, it's also vital to become familiar with all the common terms when you're going to deal with the best foreign exchange rates.
These may include:
- Sell Rate - It's the rate by which you sell foreign currency in exchange for local currency. For example, if you're travelling to the US, you'll exchange your local money for US Dollars based on the sell rate. For travellers, a sell rate is also known as the holiday money rate.
- Buy Rate - It's the rate by which the travellers buy to exchange the foreign money back into your local currency. For example, if you're going back to Europe, you'll probably exchange your US Dollars back to euros based on the buy rate.
- Spread - It's the difference between the sell and buy rates provided by the foreign exchange provider.
- Commission - It's a common fee that providers ask for from the client for the exchange of one currency to another.
- Spot Rate - It's commonly known as the interbank rate. Spot rate refers to a rate that banks and other financial institutions bill each other for exchanging huge amounts of foreign currency.
- Cross Rate - It's the rate charged to clients for exchanging currencies instead of their local money. An example of this is the exchange from Australian Dollars to Japan Yen.
When should be the best time to buy travel money?
Typically, the value of the currencies can go up and down due to unexpected reasons. That said, getting the best rate when buying US Dollars is all about luck and time. Meaning, it can pay off if you wait a bit longer before you get your travel money.
Here's how you'll know when should be the proper time for travellers like you to buy US Dollars in Australia before your trip:
When You Watch Foreign Exchange Rates
If you want to provide yourself the best chance to get a good price, it's essential to keep an eye on the foreign exchange market. As the currencies go up and down unpredictably, you have to keep track of the market trends.
Check the dollar rate on a regular basis so you'll get to know whether the price is increasing or decreasing. Generally, the best thing to do is to begin checking around at least a month before your scheduled trip. Doing so can give you sufficient time to figure out when it's best to purchase US Dollars.
When You Buy Now And The Rest Later
Because of how the market changes, it's sometimes difficult to determine the value of a US Dollar in the coming months. Given such circumstances, buying half of your travel money now and half later can be a great idea.
For instance, if the exchange rate looks stable and you're satisfied with the current price, you can purchase some dollars now and complete the rest at a later time.
By doing this, you can ensure the exchange that even if it later goes down a few days before your trip, you gain something. You can take advantage of this when the rate stays the same for a reasonable period of time. However, it's still a good idea to watch out for the market to get the most out of the better price.
When You Shop Around
As a general rule, there's no definite time as to when you should buy US Dollars before your trip. If you're a constant international traveller, you can get the best rate if you shop around and compare options.
Although several people visit the Post Office or their local banks for purchasing their travel money, this may not be the most convenient and cost-effective thing to do.
While they can sometimes offer great travel money rates, it doesn't hurt to spend time and energy looking around for more choices first.
When You Look At The Total Cost
To know the best time to buy US Dollars, it's essential to take a look at the total cost and not just the rate itself. By taking the other expenses into account, you'll see how much a foreign exchange can cost you before your trip.
From commissions to deliver fees, consider these charges so you can find the perfect time to purchase a foreign currency.
When You Avoid Exchanging Money During Weekends
You can get the best exchange rate every day except on the weekends. This is because the foreign exchange market isn't operating during the weekends.
In other words, most currency exchange service providers, international banks, and money changers are closed so the last operation is on Friday.
Over the weekend, there are no adequate foreign currency cash flows that can cause a rise in the exchange rates. So, if you want to obtain the excellent rates, wait for the opening of the market on Monday.
When You Use A Prepaid Currency Card
There are several useful credit cards available in the market that enable you to use a good exchange rate when buying US Dollars for an international trip. That said, find a specialised overseas credit that you can use wherever you are in the world, particularly in the United States of America.
However, if you can't find one, using a prepaid currency card can be a good choice. This type of currency card can also give you an almost perfect rate. It also provides you with an option to lock in the current rate. Even if the rate is going down, there's nothing to worry about because you can upload the travel money now and spend it later.
If you follow these things, you can save a lot of money when it comes to buying a currency for your next trip. The hints listed above can also give you an idea about the best time to purchase travel money.
What are the key factors affecting foreign exchange rates?
By now, you already have an idea of what a foreign exchange rate is. Aside from sending or receiving money from overseas, you can also use exchange rates when travelling.
Thus, if you're going for a trip soon and planning to purchase US Dollars, below are the factors that can affect foreign exchange rates:
- Interest rates - The fluctuation in interest rate can impact the value of the currency and the exchange rate. It's important to note that forex rates, inflation, and interest rates are inter-connected. A rise in the interest rate can also entail an increase in the exchange rates.
- Inflation rates - The rising and dropping of exchange rates can cause changes in the exchange rates. If the country has a lower inflation rate, the value of the currency increases. However, if the country exhibits a higher inflation rate, the money value drops down. For example, the fall in the Australian dollar may result in fewer Australians travelling abroad as the currency exchange may no longer be appealing.
- Recession - A country that experiences recession will more likely have lower interest rates, leading to a decreased chance of acquiring foreign capital. Consequently, the currency weakens, which in turn, lowers the exchange rate.
- Political performance and stability - The political state of a country can also affect the value of the currency. If your state has good political stability and performance, it can attract more foreign investors. A country with political confusions, on the other hand, may have depreciation in foreign exchange rates.
- Terms of trade - When your country's terms of trade are improving, the export prices increase than the import prices. This will lead to higher revenue and a rise in exchange rates.
- Government debt - There'll be a decrease in the exchange rate if your country has government debt. The presence of government debt is less likely to attract foreign capital, resulting in inflation.
These are the variables that can influence exchange rates. Before proceeding with an exchange, make sure you understand all the factors mentioned above so you won't be surprised with the prevailing rates at the time you want to get a currency exchange.
What You Should Consider When Selecting A Currency Exchange Provider?
Most currency exchange providers offer selling and buying of currencies for travelling and international transfers. However, not all providers are equal. Some may provide an excellent exchange rate while others may not. In such a case, it's essential to consider some things before you choose the currency exchange provider that works best for you. Below are some tips to help you get the right provider:
Exchange Rates And Fees - Because of the stiff competition in the market, currency exchange companies provide different exchange rates and fees. Make sure to request for a quote and check if there are other fees included before committing.
Rules And Regulations - Of course, you need to know if the provider is licensed and compliant with the law. It's always essential that the currency exchange company has a license before making any currency exchange to avoid possible fraud.
Location - Sometimes, the location of the foreign exchange provider can impact the way they offer their services. For example, if the office is located at the airport, the exchange rates and fees may be more costly than those operating in the city. On the other hand, if the exchange companies are situated in the same street, chances are they have similar and competitive offers.
With these factors in place, finding the ideal currency exchange provider is made easier and faster. If you get the right one, you can save a considerable amount of money. Unlike what many people believe, the exchange rate isn't only the primary factor that differentiates two currency providers. Hence, it's required that you're aware of all other variables to allow you to select the best option.
Final Thoughts
Indeed, buying US Dollars before you travel requires a lot of consideration. From the best time to purchase to finding the right currency exchange provider, there are so many things to keep in mind to ensure a smooth money exchange process. Nevertheless, you're bound to minimise the expenses and acquire the best exchange rate when going on a trip to a foreign country.
So, if you're planning to travel from Australia to the US, take a look at this article so you'll know what to expect when you're confronted with the need to exchange your Australian Dollars to US Dollars.
This is sponsored content for The Currency Shop.