Greenback dollars are great when you stay within the United States, but if you are planning to travel abroad, it’s important to understand the process of exchanging money and methods of determining exchange rates.

Exchange rates fluctuate – sometimes dramatically – so you will want to get an idea early on in your travel budgeting process how much your money will be worth once you reach your foreign destination. Check the exchange rates several times and check once more just before you leave home to make sure you will have the money you need to travel, shop and eat.

The Internet is your best source of information for exchange rates. To get information on historic exchange rates, visit the United States Department of the Treasury online at http://www.fms.treas.gov/intn.html#rates . Keep in mind that these are not up-to-date exchange rates and are only intended to help you get an idea of what you can expect your U.S. dollars to be worth in other countries.

Many financial institutions provide real-time exchange rates and online currency converters. Travelers would do well to exchange currency through a major bank in order to lock in an exchange rate. Most financial institutions that exchange currency will charge a marked up price to do so. Exchange rates free float, so there is no “best time” to convert.

In general, banks and legal money changers offer the best rates to exchange one currency for another.

Changing Currency

There are many websites that offer real time exchange rates. You can check listings in your local newspaper too. Once you have an idea of the rate you can expect, find a legal money changer such as American Express Travel Service or a bank that offers an acceptable exchange rate. Many hotels and airports also offer money changing services, but the rates tend to be higher. If you withdraw money from an automatic teller machine, you will get the bank’s exchange rate, but will probably pay additional transaction fees.

It’s a good idea to exchange small amounts of money before you leave for your trip so you are not forced to exchange currency at the airport when you arrive. Remember than most money changers won’t exchange coins.

When you visit a bank to make your exchange, be prepared to show the teller your passport. Use your own calculator to check the accuracy of your exchange at the bank. You will be asked to sign a release form. Schedule plenty of time to make this transaction. Make sure you stand at the counter and count the money you receive before you leave the counter. No pressure here, just take your time. Never leave without a receipt. Put the receipt somewhere safe in case customs officials ask to see it. While they are not likely to make such a request, you will be prepared in the unlikely event that they do.

Use ATM Cards to Exchange Money

ATM cards are convenient, hard for thieves to use and really handy when banks are closed for the holidays. When you use an ATM card, you will get the exchange rate offered by your bank, but you might have to pay a surcharge. Find out in advance what that surcharge will be.

Traveler’s Checks Protect You and Your Money

Traveler’s checks are a very common method of exchanging currency. They are safe and offer plenty of flexibility. In fact, you can exchange them wherever you find a great rate.

Some methods of exchange, however, offer this convenience at a significant cost. But luckily, many credit card services and travel clubs offer memberships with fee-free traveler’s check privileges.

Banks and other money exchange offices do sometimes charge commission fees to cash traveler’s checks – expect to give up about 3 percent of the amount of your transaction.

Calculating Rates

When you visit a money exchange office or major bank, ask where currency exchange rates are displayed. Notice the set of two numbers that signify the “Buy Price” and the “Sell Price.”

Imagine for a moment that you are in a foreign country and want to trade your U.S. dollars for the country’s currency. In that case you would look at the US Dollar “Buy” price. When you are ready to travel back to the United States, look at the US Dollar “Sell” price.

The Cost of Exchanging Money

Different money changers charge different fees. Expect to pay for the cost of convenience – but take the time to shop around if at all possible.

Some people choose to exchange money at an airport. Fees are traditionally higher at airport exchange rates, but depending on where you go, you might find such money exchangers to have rates very comparable to those at a bank. In some cases, it is worth the convenience.

Cash machines are common in large cities. If you are traveling in Europe you will find them very convenient and in most cases you can use the same ATM card you use at home. Before you leave the United States, find out how much you will be allowed to withdraw each day and what kind of a surcharge you should expect to pay. At banks and other exchange offices the currency rate is allowed to float. In other words, the rate of exchange is determined by supply and demand. In many countries, however, the government sets an official rate. In that case, everyone should offer the same exchange rate.

Most hotels offer exchange services, but they are pricey. Restaurants offer exchange services too and sometimes fees are surprisingly reasonable.

Using Your Credit Card

Your credit card might be your very best friend when you travel. Before you leave, pay extra money on your credit card so you won’t have to worry about coming home to a major bill. This will also ensure you have all of the credit you need available while you are away. Most major credit card services such as Visa, MasterCard and American Express offer excellent exchange rates on credit card purchases. Don’t count on credit cards for cash advances though, as you will probably have to pay a higher interest rate starting from the moment you hold the money in your hand.