One of confusing things while traveling is figuring out if you are getting a good exchange rate for your money or are getting ripped off. I know that from my own perspective, when I walk up to a money exchange office, I always do a double take on the “we buy” or “we sell” listings. Which is which?
I’ll explain it all in a second, but here is the easiest way to determine whether the rate you are being offered is a good one or not:
Just look at the difference between the two rates — done
The difference between the two rates is the profit for the money changer. The more narrow that gap is, the less profit they are making on the exchange and the more value you are getting. A narrow gap in the two rates means you are getting a good rate. A wide gap means you are getting ripped off. Its that easy. The only other thing you need to know is whether there is a commission charged, which also decreases your value, but it is usually easy enough to find a no-commission exchange.
Let’s take the example at the right, which I just took a shot of when I went through Heathrow Airport a couple weeks ago. First take a look at the splits between the “we buy” and “we sell” rates.
As a general rule, never exchange money in airports or train stations. Places where tourists are newly arriving in a country are notorious for having rates that frankly should be criminal.
Here, they are offering to sell you 1 British Pound for $1.84 (they are the ones “buying” the dollars — ergo the “we buy” rate). On the other hand, if you gave them 1 British Pound, the would give you $1.46 (they are selling you dollars for your pounds).
Not surprisingly, the real exchange rate for British Pounds to US Dollars is $1.62 — right in the middle of the spread they are offering.
Their profit is your loss. In this case, the difference between the real exchange rate and the rate at which you would be buying British Pounds on your arrival at Heathrow is 12%. Similarly, if you arrived at Heathrow and wanted to change your pounds for dollars on your way home, you’d be losing 9%.
I love the U.K. and all, but I don’t need to be contributing that bit to their economy since there are so many better options in town.
Unless you are exchanging money at a “non traditional location,” such as a guy offering to swap with you on the street like I had to do a few times in Africa, this simple little tip is the easy way for you to navigate whether you should exchange money at any legitimate exchange shop.
All that being said, I personally think it is a lot better idea to just use ATMs to get local currency, instead of carrying around money to be exchanged. But that being said, sometimes you are leaving a country and just need to change the leftover cash you have into something you can use.
Just don’t do it at Heathrow.