How can I reduce the cost of currency exchange on online orders?

Mad Mike

Up until recently I always opted to pay in the local currency and let my credit card do the conversion but I have learned that my bank has introduced a (possibly new) 2.25% charge on all non euro transactions. Are there ways to do better than this?

I tried to do some research myself with little success but here is what I came up with so far. A lot of my online purchases go through Amazon or Paypal:

Amazon offer a "local currency converter" but for some reason the local currency they offer me is GBP and can't get it to give me euros.

Paypal have a currency conversion option but their fees seem very steep. Between 3.8% and 4.9% for credit card purchases if I am reading things correctly.

Nody

Short of getting a better bank/card why not deposit money into Paypal in advance? That way you'd pay in with EUR and Paypal can charge what ever currency they want without a fee.

Mad Mike

Hi Nody I don't think the Paypal deposit thing works. If you deposit an amount in Euros and then use it to make a payment in another currency then Paypal will charge you a currency conversion fee. It takes a bit of digging to find that fee but my reading of their terms and conditions suggests that the fee is between 3% and 4% depending on the currency. I think I am better off sticking with my bank's 2.25%.

A better credit card may be an option. Anyone have any suggestions of a credit card optimised for currency conversion?

AlwaysAmber

With PayPal for some reason it's cheaper to convert your balance into the currency you need beforehand rather than let PayPal do it at the checkout. You won't make much savings on smaller items, but for larger purchases you will make savings. It only works if you have an existing balance though.

All Irish credit cards will have a currency surcharge, you can compare some of them at http://www.uchoose.ie/compare-credit-cards/when_abroad/. The cheapest seems to be 1.75%. You can get prepaid cards in USD or UKP, but the fee's will probably eat the currency savings.

Mad Mike

Thanks Amber.

I checked out the Paypal Balance Conversion thing. According to the inbuilt calculator if I convert €100 to UK£ today I would get £77.20. The interbank rate reported by Google however is £79.63. It looks like Paypal are taking about 3% whether through fees or just using a poor rate I cannot tell.

It is beginning to looks like a fee of between 2 and 3% is inevitable for low value purchases. If you buy a lot of stuff online that can easily add up over the course of a year.

irishgeo

i been thing about this, i think this is the way to go.

1. get an Anpost currency card.
2. Load this up comission free.
3. use this card to buy your stuff or use it to load up paypal,
4. The only downside i can see is that doesnt have the verified by mastercard so you cant use it on a any site that requires that.

I been meaning to get around to this.

Mad Mike

Thanks Irishgeo for linking to the An post stuff. One thing to watch out for is that they have a poor exchange rate. Exchange rates are hard to compare because they vary constantly and different organisations lock in at different times but you can look an an individual organisations bid offer spread to get an idea of their profit margin on the exchange.

For example today An post are selling UK£ at £0.7687 per euro and buying at £0.8163/€. That suggests a central price of (0.7687+0.8613)/2=0.7925. Their selling price is 3% below this central rate which is very similar to Paypal's rate.

Compare this with Bank of Ireland whose rate at the moment for low value non note exchange is to sell UK£ at £0.7732/€ and to buy at £0.8088/€. This suggests a central rate of (0.7732+0.8088)/2=0.791. Their selling price is only 2.5% below the central rate. Of course they may add a commission on top of this.

Beano

irishgeo wrote: »

i been thing about this, i think this is the way to go.

1. get an Anpost currency card.
2. Load this up comission free.
3. use this card to buy your stuff or use it to load up paypal,
4. The only downside i can see is that doesnt have the verified by mastercard so you cant use it on a any site that requires that.

I been meaning to get around to this.

The other downside is that is a debit card and not a credit card. I'd never use a debit card for online stuff.

irishgeo

Beano wrote: »

The other downside is that is a debit card and not a credit card. I'd never use a debit card for online stuff.

yeah but you be covered to by paypal.

Mad Mike

Ok to follow up on this I did some more detailed investigations. Skip to the end for a short version.

Long version:
When you use a Mastercard or Visa card to make a purchase in a foreign currency Mastercard or Visa charge apply a very competitive exchange rate which you can lookup here: https://www.mastercard.com/global/currencyconversion/ or here: http://www.visaeurope.com/en/cardholders/exchange_rates.aspx These rates appear to be wholesale rates which are much better than you or I can can normally get for low volume transactions. They are very similar to the rate you get if you just Google the exchange rate.

Your issuing body (usually a bank) then charges a fee on top of this. The fees issued banks in Ireland seem to vary between 1.75% and 2.75%.

Sample fees from quick Google searches (Errors and Omissions Excluded)
Tesco: 1.75%
Bank of Ireland: 2.25%
AIB: 1.75% Europe, 2.75% rest of World.
Ulster Bank: 2%
PTSB:1.75%
KBC: 2%

I cannot find any Irish credit card issuer that does not charge a fee for non euro transactions.

Organisations such as Paypal and Amazon can do the currency conversion for you BUT from my sample calculations their combination of fees and exchange rates seems to be significantly worse than that offered by any of the credit cards. The effective fee being charged seems to be between 3% and 4%.

Drawn Out Example:
Making a purchase of UK£1000 and paying in Euro (Using 7 Aug 2014 exchange rates)
Google exchange rate for comparison £1000 = €1259.83
Amazon Currency Converter cost: €1306.54
Paypal send money: €1308.24
An Post PostFX Mastercard: €1305.31
Tesco/PTSB/AIB Visa (1.75% rate): €1286.83
BoI Visa (2.25%): €1293.16
BoI Mastercard (2.25%): €1286.14
Ulster Bank/ KBC Master Card (2%): €1283.00

Note the exchange rates may have been calculated at different times of the day so it is hard to draw exact comparison between Visa and Mastercard but it is clear that all of the bank credit cards are better than the built in services.

Short Version
Even with fees of around 2% using a bank credit card seems to be the best option with savings of around €20 possible on a £1000 purchase. I don't think it is possible to make a definitive comparison between banks based on the information above because Visa and Mastercard appear to have different base exchange rates at this point in time and I do not know how representative this is.

EDIT:
I have just noticed that the Visa website is currently giving rates for today (8th August) while the Mastercard Website is giving rates for 4 days ago (4th August). This reinforces the point that you cannot use the data above to say that Mastercard is better than Visa or vice versa. Also please note the rate that will be used for your online purchase is the rate on the day of settlement which could be a few days after the actual purchase. The general point that bank credit cards are cheaper than web site built in currency conversion still applies.