Banking and money tips for study abroad students
Some people call me cheap, I like to use the phrase “budget conscious”, but either way, penny pinching happens to be one of my areas of study abroad expertise. Instead of writing a giant post with a ton of one-liners about saving money, I’ve decided to create a little series called “Ways To Save Money While Studying Abroad“. I’ll cover a different topic area in each post, and by limiting the number of tips per post, I’ll actually be able to give you a real explanation for each one. It made sense to begin the series from the birthplace of money (sort of): trees.
Kidding: the bank. Optimizing your spending for studying abroad is a bit of an art. You’re dealing with a different form of currency, different exchange rates that can vary from one day to the next, and different fees associated with the use of ATM’s and credit cards. Your goal should be making your money easily accessible in the country you’ll be visiting and minimizing any fees that banks and credit card companies may charge you.
1. Keep track of exchange rates
The exchange rate is basically how much your cash is worth in another country’s currency. Check out the chart on the right side of the page for a few examples of current exchange rates for the USD (U.S. Dollar). A few percentage points may not seem like a big deal, but if you’re taking out large chunks of cash from the ATM or making big purchases like flights, you can be talking about hundreds of dollars. Keeping track of exchange rates is really easy with websites like Yahoo that post daily exchange rates for all currencies, and XE.com which is a great tool for converting money of any amount and currency. This ensures you’re getting the most value out of your dollar.
2. Understand ATM/foreign currency conversion fees
ATM’s are the best place to get money abroad, however, one of the biggest misconceptions about ATM’s is that there’s one flat fee to withdraw money. In reality, you can be charged multiple fees which usually include a flat $2–5 transaction fee from your bank each time you use an ATM, a percentage fee for the currency conversion (1–3 percent), and possibly a fee from the ATM you use abroad. These fees can unknowingly take a big chunk out of your budget. On the positive end, ATM’s are known for giving THE BEST exchange rate, so as long as you know the fees you’ll have to pay with each transaction, ATM’s are probably the smartest option.
3. Sign up for a bank account within the Global ATM Alliance
The Global ATM Alliance is a group of several major international banks that allows customers to use their ATM card or debit card at another bank within the Global ATM Alliance with no International ATM Access fees. For example, people that have an account with Bank of America aren’t charged any withdrawal fee when using Barclay’s ATM’s in the UK or Deutsche Bank ATM’s in Germany. The fee referred to here is the fee most domestic banks will charge to use a foreign banking service, but keep in mind, other fees like an international transaction or currency exchange fee may still apply.
4. Withdraw more money and less often
Limit how often you use ATM’s by always withdrawing as much cash as you feel comfortable carrying. Time for some more math. If you’re studying abroad for a year (10 months), you would probably take out money from an ATM almost every week. Let’s say every time you make a withdrawal, it costs $4-$5 USD in fees – that’s between $150 and $200 USD per year. I know it’s not always the safest feeling walking back from an ATM with a massive wad of cash in your pocket, but if you’re careful when you withdraw it and you have a friend walk with you, you should be just fine. Keep your cash someplace safe like a locked drawer.
5. Use a credit card
Credit card purchases are exchanged at the inter bank exchange rate, which is usually the best rate you can get for currency exchange. As expected, most credit card companies charge currency conversion fees which is usually 1 percent from Visa or MasterCard plus an additional 1 – 2 percent for the company. Even with these fees, credit cards can be a smart option because the fees are lower than those you’d pay to cash traveler’s checks or convert cash at an exchange counter, and credit card purchases also come with insurance and greater fraud protection. There are actually cards that don’t charge any foreign transaction fees at all, the most notable being Capital One.
– Note: Consider a credit card tailored towards travelers. Many travel credit cards offer different kinds of rewards, from general points programs to hotel and airline cards, which can help you save money in the long run.
6. Opening an account with a foreign bank
This is definitely a practical option for students studying abroad, especially those going for the whole year. Most study abroad programs will recommend particular banks that are student-friendly, and will explain the options for opening bank accounts during your orientation. Foreign bank accounts solve the problem of ATM fees, and are useful if you start working/receiving a paycheck, or if you want to get a monthly cell phone plan. From my experience with both Royal Bank of Scotland and Bank of China, the process for opening a bank account as a study abroad student is relatively simple as long as you have all the required documents (call ahead to find out what those are).
7. Traveler’s checks
Travelers checks are becoming obsolete, however, they’re still one of the safest forms of currency abroad. They can be replaced within 24 hours if they’re stolen, and they can help you save money if you buy them with a favorable exchange rate. Be aware that not all merchants accept them, and if you are buying checks abroad, know that there can be limits on the dollar amount you can buy per day (e.g. you can only buy $500 worth of travelers checks per day). There are fees associated with buying travelers checks, so if you’re having to go back and forth to a bank to buy checks for a big purchase, it might be just as cheap and more convenient to take the cash out of an ATM or use a credit card.
8. Avoid Cash Exchange Counters
Currency exchange companies like Travelex usually have the worst exchange rates, and as hard as they try to lure you in with convenient locations and big, flashy signs, it’s best to avoid them if. As convenient as they may seem, exchange counters are known for tacking huge transaction fees on top of an already inflated exchange rate.
9. Purchase foreign currency at your local bank before you leave
I say it all the time, one of the things you should do before going abroad is taking out the equivalent of $300 in foreign currency. Banks don’t have the cheapest exchange/transaction fees, however, this will save you from having to make desperate moves in an emergency – e.g. the airport’s ATM’s are out of order, all the banks are closed, or there’s long line at the currency exchange counter.
10. Plan and budget
The easiest way to save money when spending money is to plan out and stick to a budget. Before you leave, set up online access to your bank account so you can check balances, make payments and transfer funds. When checking your account online, you can also see the exact exchange rate you’re getting, and whether the bank is charging any extra unexpected fees. (Knowing these fees in advance will help you build the extra cost into your abroad budget.) If you need to, create saving goals – you’re much more likely to save money when you know you need to buy a ticket to Paris.
Cash is still in king in this world, but there’s no one right way to save money while studying abroad. Instead of relying on just one method, take money in multiple forms — an ATM card, credit card, traveler’s checks, and some cash for emergencies. Stick with debit and credit cards, take large amounts of money out of the ATM at once, and avoid cash exchange counters. Finally, do your research on fees and rates and remember that they all add up!
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If you have any other money saving suggestions, questions, or comments please feel free to leave them below and I’ll get back to you!