Confused about exchange rates
 

The more I read about the exchange rates and the best ways to get Euro, the more confused I am.

We are with BoA and WF. The rates from both banks are 8% higher than the market value (what is posted on xe.com). Everyone is suggesting to get cash from an ATM when we get to France, but is it really cheaper to do it that way? Is the rate from an ATM the same as the market rate or the bank rate? I would assume it is the same as the bank rate. Am i right? So, if we don't mind carrying a lot of cash on us, it would not make a difference whether to order euro from our banks or to use ATM card in Europe, right?

BTW, I am aware that we withdraw cash at any BNP ATMs in France, there won't be the additional $5 fee charged.

I am just really confused right now. Please help! Thanks in advance.

The exchange rate for a withdrawal from an ATM in France will be close to the market rate, not the higher "bank" rate. Cash withdrawals from an ATM remain the best way to get cash, particularly when (as with BoA-affiliated foreign banks you can avoid the small transaction fee.

Yes, it really will be cheaper to ATMs to get Euros. Compared to the 8% you were quoted, it would be a huge savings.

An ATM does not give you any exchange rate -- it only gives you Euros.
An international electronic system (Cirrus, Plus, Visa,MC) tells your bank how many you got. The international system converts Euros to dollars at a rate very close to the interbank rate. Then your bank may add 1% or charge a per-transaction fee ($0-5, depending on the bank and type of account you hold, average around $3)

So, if you want to get $1000 worth of Euros, you could pay $1080 right now, or wait and withdraw in three ATM transactions for about $20 (1% or $10, plus per-withdrawal fees 3 x $3)

I think you are seeing the 'trail rate'. The rate used for ATM and credit card transactions would be nearer the 'business section of the newspaper' rate.

When I want to know how my currency compares, I go to the newspaper. Then I can see what mark-ups are being applied.

WF charges you a fee to use an overseas AT - just like an out-of-system ATM back home.

BofA charges as well - but they have partner banks in France (and Germany and the UK) where you do not have any fees.

But whether or not you have to pay a fee, the exchange rate will be much, much better using ATMs. Plus you won't have the security issue of protecting all that cash.

If you only use BofA partner banks, you will end up saving approx 7%. Slightly less if you use on-partners.

What are you calling the "bank rate"? the rate your particular bank quoted you by adding on 8 pct? That's their rate and not the ones ATMs use. What is often called the interbank rate is what banks get to send large amounts or something, but it's not what they quoted you. It is close to what you get in an ATM, but it's not 8 pct higher than what I think xe calls "market value".

The reason it is cheaper through an ATM is that method involves no work by your bank. For you to get foreign currency from US bank, it must import the stuff, store it securely, and have staff to get it to you -- none of these expenses apply to the ATM transaction.

Thank you so much. I think I got it now.

Market rate: what xe.com shows.

Bank rate: what the banks quote for purchasing euro from them, which is 7-8% higher than the market rate.

Interbank rate: what is charged when using an ATM to withdraw cash, which is only 1-3% higher than market rate.

Did I get it right? What happens if I take my BoA ATM card, go into a BNP (BoA affiliated) branch in Paris and ask for euros? Would they give me the interbank rate or the bank rate?

You wouldn't go into the bank - you'd stick your card into a hole in the wall, punch in how many € you want - and out come that many €. There is no "exchange" going on. It is not until the withdrawal is presented to BofA to be deducted from your account that the "rate" come into play. BNP won't be dealing in $ vs € - just €.

But the final exchange rate will be close to the interbank rate.

NO -- interbank rate is the rate at which large banks trade huge amounts, i.e., the rate published in the newspapers, sometimes thought of as "official," that everyone else (bank where your account is, credit card companies, exchange bureaus) bases their rates on by adding a percentage.

The other terms (market rate, bank rate) don't have any specific meaning that I know of.

>interbank rate
The spread between buy and sell is about 0.70%. Deutsche Bank is using this rate when using a German card with an ATM of their partner banks. Postbank is doing the same but only for up to 10 withdrawals per year.
I doubt ther is a US bank with a similar rate. BoA cards used on Deutsche Bank ATMs do use an exchange rate that is not nearly as good, yet still better than getting cash from the bank on the same day.

yep - that is what I meant. Plus 1% is "close to the interbank rate" - or close enough to explain the concept anyway.

>>>What happens if I take my BoA ATM card, go into a BNP (BoA affiliated) branch in Paris and ask for euros?<<<

Yes, you can walk into the bank with your debit/ATM card and get euros over the counter. I often do that in the UK when I need more sterling than my daily withdrawal limit. The rate is the same as, or similar to what you get in the ATM machine.

Foreign exchange rates are seemingly black magic to a of people, professional investors included.

There are several sources of the wholesale rate or the interbank rate for internationally traded currencies. The 3 I consult from time to time are at Yahoo, Onada, and XE.

http://www.oanda.com/
http://finance.yahoo.com/currency
http://www.xe.com/ucc/

Bear in mind that currency prices like stock prices vary continually all day long.

The best you can do is to get a very close approximation of the current rate by looking at one the sources on-line.

If you look at all 3 sources, you will normally see consistency among the first 2 decimal places at least.

The rate you see depends on just when you catch the posting of the most recent rate change. The fluctuations from minute to minute to are small and at worst you will see a figure that is very close to the most recent transaction on the currency market.

The rate you get from any of the 3 services listed above will be much more current than any rate quoted by your bank, and any of the 3 will give you a very good basis for comparison.

The actual exchange rate used to calculate your withdrawal at an ATM or for a credit card transaction is virtually impossible to replicate precisely. It will, however, be based on the wholesale bank rate of exchange or the so-called interbank rate.

I once tried to find out from both Visa and Master Card just how the transaction exchange rate was determined.

Visa's response said in effect: Go Away. We will not tell you. The Master Card response was unintelligible gibberish. Obviously neither one was going to tell me.

What I finally did was to collect several of my ATM transaction receipts and credit card receipts from a European trip. Then I looked at my various monthly statements to see how many dollars had been debited from my account.

I divided dollars into euro and came up with the transaction exchange rate.

I then looked up the exchange rate for the date of the transaction as posted at an on-line source that posts historical exchange rates.

I never could pinpoint the exact rate, but the rates I saw on-line and the rates I actually paid were very close. ATM transactions using Visa of course had 1% added to them

My Capital One credit card transactions seemed to have nothing added to them.

Bank of America has the greedy habit of adding 3% to credit card transactions. Needless to say, that card rarely sees the light of day when I am in Europe. It goes along for the ride strictly as a backup.

The Bank of America fee of $5.00 per transaction off net is a royal pain. I try not to use my B of A card unless I absolutely have to unless I am in the UK, France, or Germany where I can find a correspondent bank.

I now have a Fidelity debit card which will also yield cash from my core account at an ATM. The account at Fidelity is a money market fund and it pays interest on the balance. I will put the card to the overseas test in a few weeks and see how I come out.

At any rate, I will be armed with plastic when I travel this year.

I might add that you will probably need a debit card with a Visa or MasterCard logo to get a cash advance over the counter. Since the money comes directly out of your checking account, you don't pay interest as you would with a credit card cash advance.

Thank you, everyone! I now understand it completely.

And thank you, Heimdall. That was exactly my concern. In case the ATM would not let me take out too much cash, I would like to have the option to just go into the bank and get euro using my debit card.

Yes. Don't use your credit card for cash at an aTM. You get socked cash advance fees.

You would only do that if you were starving to death!!!

European ATMs often have per-transaction limits (250E is typical), but you can do several withdrawals if that's what it takes to reach the daily limit on your bank account. You can probably make multiple withdrawals at the same ATM, but if that isn't possible there will be another ATM not far away.
Now relax about the cash and plan the rest of your trip -- bon voyage.

≥≥Yes, you can walk into the bank with your debit/ATM card and get euros over the counter. I often do that in the UK when I need more sterling than my daily withdrawal limit. The rate is the same as, or similar to what you get in the ATM machine.≤≤

Not always, apparently. A couple of years ago I tried to do that at a BNP in Paris when my ATM limit was too low for what I needed and they said absolutely not. If I did not have a euro account at BNP they couldn't help me.

Sheilo is right. BNP does not give cash in the agency. You have to use the ATM outside.