Money Changing Scam lures you in with high exchange rates

A few years ago, we attended a wedding in Bali, Indonesia.

money changing scam

On our first morning, we wandered into town, found a beautiful spot for breakfast where everything we ordered was novel and delicious, and then realized we had no money to pay for the meal!

While I waited in the restaurant (as collateral), my wife rushed to find the nearest bank and exchanged US$100 into the local currency – the rupiah. I don’t remember what the USD to rupiah exchange was back then, but it was probably in the range of 10,000 rupiah to 1 USD, so US$100 likely netted us more than 1 million rupiah!

A few days later, we needed to exchange some more USD for more rupiah. This time, because there was no urgency, we took our time and came across a currency exchange shop slightly off the main strip. It offered better rates than the bank we used on the first day.

We gave it a try and it worked out perfectly. The currency exchange shop worker counted out the rupiah, handed it to us to count, took it back and counted it again, then I counted it one last time. Satisfied, we completed the transaction.  We received more rupiah this second time than at our first currency exchange. Because of this favorable experience, my wife and I fancied ourselves “in the know”.

Another few days later, we returned to the same currency exchange shop to carry out a third transaction.

BAD IDEA! Here’s why—

The transaction started off similarly.  The currency exchange shop worker counted out the rupiah, handed it to us to count, took it back and counted it again, then I counted it another time.

On this occasion, we were less guarded (as we thought we were “regulars”) and we allowed the worker to take the rupiah back one last time. He counted it and placed it in an envelope for us.

My wife and I happily walked out of the shop and spent the rest of the day enjoying the sights.

Back at our hotel later that night, we pulled out the rupiah envelope (which we had not touched since the transaction), counted it again, and discovered that we had been significantly SHORTCHANGED.

How did this happen?

I’m not an artist (as you can see), but let me try to illustrate what happened:

 

money changing scam

 

On his final touch of the rupiah, the moment our eyes strayed from watching him count, the worker dropped some of the rupiah bills onto the lower ledge (out of our sight) while continuing to count out loud. Then when the count was complete, he placed the remaining bills into an envelope for us.

Our downfall was that we allowed him to touch the rupiah bills last.

Here’s how this money changing scam works:

  1. Higher exchange rates lure us in.
  2. A successful first transaction instills a false confidence in us.
  3. On the next transaction, the worker counts the rupiah last and when we’re not watching, drops bills onto the lower ledge and out of our sight. The tall counters make the dropped bills fall out of sight quickly!
  4. Our false confidence convinces us that we don’t need to count it one last time.
  5. We leave and once out the door, we have no proof that we were scammed.

Moral of the Story

Beware a foreign currency shop whose exchange rates are better than most, especially if there are tall counters separating you and the worker. It’s probably a money changing scam.

If you still opt to venture in, then be sure to NEVER LET THEM COUNT/TOUCH THE MONEY LAST.

Of course, please don’t conclude that all Balinese money changers are untrustworthy and out to cheat you. Rather, just be cautious and attentive and don’t repeat the mistake we made.

Or to avoid the risk of this money changing scam, withdraw foreign cash from ATMs while traveling (see our post on, “When using foreign ATMs – make larger but fewer withdrawals“) and use our Leftovercash kiosks when you return to the U.S.

The Leftovercash kiosks accept your leftover foreign bills and larger-value coins from: Great Britain, Europe, Canada, Switzerland and Japan (in ONE transaction) and convert them into valuable gift cards and donations to worthy causes for just $3.99.

When using foreign ATMs – make larger but fewer withdrawals

I’ve returned from my family reunion in France and it was a wonderful time of eating, playing with my nieces and nephews and driving my stick-shift Audi A1 rental car (sure beats a Chevy Spark and for only US$30.29/day) around the Burgundy countryside.

P1000871

One night, my three brothers and I were playing foosball (table soccer) in the basement of the house we rented when it suddenly hit me how much I missed having them around me in my daily life in Los Angeles. We weren’t raised to express our feelings and emotions so I’m grateful to my wife for encouraging me to tell my brothers how I feel. And I’m also grateful to my mother for arranging these family reunions so I would even have a chance to experience my feelings at all.

But we didn’t spend the whole week holed up in the French chateau playing foosball and having feelings!

While we were over there, I exclusively used my Marriott Visa card and as promised, they did not charge me any foreign transaction fees. The exchange rates also seemed very fair as I noted in my last blog entry.

 

Withdrawing cash from a French ATM

Near the end of my trip, I tried an ATM cash withdrawal to see what that would cost.

On Aug 5, 2015, I withdrew 100 Euros from a BNP Paribas ATM in Metz, France.

bnp

Here’s what I experienced:

  • BNP Paribas didn’t charge me a fee for using their ATM.
  • BNP Paribas withdrew US$109.90 from my account for the 100 Euros I received from their ATM. This represents a foreign exchange rate of US$1.099  for 1 EUR. I calculated this as follows:

US$109.90/100 EUR = US$1.099 for 1 EUR

According to www.xe.com, on Aug 5, 2015, the market rate was US$1.09022  for 1 EUR. This means that the BNP Paribas rate of US$1.099 for 1 EUR was marked up less than 1% over the market rate (0.8% to be exact).

I calculated this as follows: US$1.099 divided by US$1.09022.

I think it’s fair to say that the BNP Paribas foreign exchange fee was very reasonable.

HOWEVER,

  • My home bank in the US charged me US$5 for using a foreign ATM.

So, in total, I paid US$109.90 + US$5 = US$114.90 for 100 Euros, which represents a foreign exchange rate of US$1.149 for 1 EUR. I calculated this as follows:

US$114.90/100 EUR = US$1.149 for 1 EUR

 

The Best Strategy when using Foreign ATMs

So, next time, if I need cash from the French ATMs, I would plan on withdrawing more Euros each time I use the foreign ATM and minimizing the total number of times I use the foreign ATM.

Here’s why. Let’s compare the costs of withdrawing:

  1. 1,000 EUR in one ATM transaction, versus
  2. 100 EUR each in ten separate ATM transactions

 

One withdrawal of 1,000 EUR

As I mentioned above, on Aug 5, 2015, BNP Paribas gave me a foreign exchange rate of US$1.099  for 1 EUR at their ATM.

1,000 EUR would have cost:

1,000 x US$1.099 for 1 EUR = US$1,099

Plus my home bank would have charged me a single US$5 foreign ATM usage fee.

Therefore, the total cost of 1,000 EUR would have been:

US$1,099 + US$5 = US$1,104

 

Ten withdrawals of 100 EUR each

Assuming that I carried out all of my withdrawals on Aug 5, 2015, the same BNP Paribas foreign exchange rate of US$1.099  for 1 EUR applies.

100 EUR would have cost:

100 x US$1.099 for 1 EUR = US$109.90

Ten withdrawals of 100 EUR each would have cost:

US$109.90 x 10 = US$1,099

BUT my home bank would have charged me TEN US$5 foreign ATM usage fee (i.e. US$50).

Therefore, the total cost of withdrawing 1,000 EUR over 10 transactions of 100 EUR each would have been:

US$1,099 + US$50 = US$1,149

 

Conclusion

So by withdrawing 1,000 EUR in one ATM transaction instead of withdrawing 100 EUR ten times, I SAVE US$45.

Not bad! I can think of plenty of ways to spend US$45 rather than just giving it to the bank in fees!

But whatever you decide to do, when you come home, bring your leftover Euro bills and coins to our Leftovercash kiosk so we can help you conveniently convert it back into a US retail gift card or donation!

With our Leftovercash kiosks as an option, there’s no need to leave your leftover foreign bills and coins lying idly around in a kitchen counter or a ziploc bag anymore!

Using Credit Cards in Europe on the Poon Family Reunion

I grew up north of Toronto in Canada with my three younger brothers, my mom and dad and two grandmothers. Since then, my dad and one grandmother has passed. My mom now lives in British Columbia, one brother lives in Switzerland, another lives in Hong Kong and one lives in Toronto about 2 miles from where we grew up.  My maternal grandmother also lives in Toronto while I live in Los Angeles.

We don’t get to see much of one another anymore. So about 5 years ago, my mom created a plan where once every 18 months we’d all get together and she’d spring for the accommodations. Each brother takes turns picking a location. She said it could be anywhere in the world. My mother is wise – she selected an 18 month gap so that our reunions would rotate between summertime and Christmas. The variety is nice for us but it also means that each of our wives’ families can plan their own family reunion every other Christmas.

Next week will be the third Poon reunion. This time, brother #3  chose France as the reunion destination. I’m really looking forward to it and have a suitcase full of gifts for my six nephews and nieces that I’m going to surprise them with!

cc3

As I’m getting ready for my trip, I made some calls to the credit card companies to see if using credit cards in Europe makes sense. Here’s what I learned:

 

1. Does your credit card have a Foreign Transaction Fee?

Don’t confuse the foreign transaction fee with the foreign currency exchange rate. They’re different. The foreign transaction fee is a cost that the credit card companies slap on you every time you charge something to their credit card in a foreign country (in other words, outside of the United States).

My Chase Freedom Visa credit card charges 3% of whatever you are charging to the credit card, as a foreign transaction fee.

My REI Mastercard credit card (like my Chase Freedom Visa) also charges 3% of whatever you are charging to the credit card, as a foreign transaction fee.

So if I charge breakfast for 10 Euros onto my Chase Freedom Visa or my REI Mastercard in France, the related foreign transaction fee will be:

10 Euros   x   today’s exchange rate of  1.09362 USD per 1 Euro  x   foreign transaction fee of 3% = US$0.33

The foreign transaction fee doesn’t seem like much on a 10 Euro charge but it would quickly add up on a 300 Euro hotel bill, for example.

My Marriott Visa credit card doesn’t charge a foreign transaction fee at all. Why? See point #2 below.

Test yourself

Try calculating what the foreign transaction fee would be on a 300 Euro charge. Assume the same exchange rate and 3% fee as set out above. The answer is at the very bottom of this post.

 

2. Does your credit card have an Annual Fee?

My Marriott Visa credit card has an annual fee of US$85 and in return, one of the benefits of the credit card is that there are no foreign transaction fees charged.

Mean while, the other two credit cards don’t have annual fees but charge a 3% foreign transaction fee on every purchase made outside of the US.

Virtually all credit cards with no annual fees charge foreign transaction fees, while virtually all credit cards with annual fees don’t charge foreign transaction fees.

So you have a decision to make – do you travel internationally often enough to justify paying the $85 annual fee so you can avoid the 3% foreign transaction fee? You’d have to spend the equivalent of US$2,833.33 each year OUTSIDE OF THE US on the Marriott Visa to save US$85 in foreign transaction fees. Once you spend more than US$2,833.33 each year OUTSIDE OF THE US, you’ll be saving more than US$85 in foreign transaction fees!

Here’s how I calculate how much I need to spend outside of the US to generate a $85 foreign transaction fee:

“x” represents the US$ amount that I need to spend internationally

.03x = 85

x = 85 divided by 0.03

x = 2833.33

Of course, there are other benefits to credit cards with annual fees like the Marriott Visa (free hotel room stays, Marriott points, etc) that you might also value. So if for example, you valued the other Marriott Visa benefits at $50, then you’d only have to spend the equivalent of US$1,166.66 or more, outside of the US, to justify the remaining $35 annual fee.  Here’s how I calculated this:

.03x = 35

x = 35 divided by 0.03

x = 1166.66

So the key questions here are:

a. How much do you charge to your credit card internationally each year?

b. How much value do you assign to the credit card benefits other than the benefit of not being charged foreign transaction fees?

 

3. What foreign currency exchange rates do the credit card companies apply to the charges I make abroad?

After speaking to representatives at Chase Bank and US Bank, it appears that all Visa cards use the same daily Visa foreign currency exchange rate and all Mastercard cards use the same daily Mastercard foreign currency exchange rate.

The Visa foreign currency exchange rate can be found here:

http://usa.visa.com/personal/card-benefits/travel/exchange-rate-calculator.jsp

cc4

and the Mastercard foreign currency exchange rate can be found here:

https://www.mastercard.com/global/currencyconversion/index.html

Using the two websites above, I found that on July 20, 2015, 1 Euro was worth:

Visa ————- US$1.090791

Mastercard —– US$1.087

Open Market — US$1.0825 (according to Bloomberg Business News)

Compared to the open market rate, Mastercard is 0.416% worse while Visa is 0.766% worse.

Those are pretty slim differences. In other words, it seems like we’re getting pretty good foreign currency exchange rates from the credit card companies.

 

4. Conclusions

Generally, using credit cards internationally is a great idea because the credit card companies seem to offer really fair foreign exchange rates (see point #3 above).

So, then you just have to decide whether you want a credit card with a foreign transaction fee or not.

In my case, I would use the “no foreign transaction fee” Marriott Visa credit card with an $85 annual fee if I think I’ll spend more than $2,833.33 internationally each year.  The $2,833.33 break-even point is reduced if I assign value to the other Marriott Visa credit card benefits as I mentioned above.

If I think I’ll spend less than $2,833.33 internationally each year (or whatever I decide the break-even point to be), then I would just stick with my free REI Mastercard or Chase Freedom Visa credit cards.

To find the break-even point, take the annual fee, subtract the value of the other card benefits and then divide by the foreign transaction fee percentage (here it is 0.03).

 

5. The Best Strategy

Many of the annual fee credit cards like my Marriott Visa don’t charge an annual fee until the beginning of the second year. That means you can take advantage of the “no foreign transaction fee” benefit for free for the entire first year!

Just sign up for a “no foreign transaction fee” credit card a month or two before you travel abroad and then cancel it before the first year is over. That way, you don’t pay an annual fee and you still get the “no transaction fee” benefit!

 

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Thanks for reading!

 

ANSWER

US$9.84

Here’s how I calculated this:

300 Euros   x   today’s exchange rate of  1.09362 USD per 1 Euro  x   foreign transaction fee of 3% = US$9.84

Introducing the Leftovercash blog – getting and spending foreign cash wisely while traveling

Hi! My name is Ferdinand Poon and I invented the Leftovercash kiosk.

The Leftovercash kiosk solves a problem for travelers who return home with leftover bills and coins from foreign countries.

Instead of stashing away your leftover foreign cash in a sock drawer, a ziploc bag or giving it away as a souvenir, the Leftovercash kiosk takes all your foreign bills and even your “big” foreign coins and exchanges it into retail gift cards you can use like cash at Staples and Lowe’s and many other stores.

We’re the only place in town that’ll take your foreign coins!

P1000415-r

 

Today I’m launching the new Leftovercash blog. My intention is to host a discussion on the best ways to get and spend money while traveling overseas. I’ll share my experiences on:

  • buying foreign money before you leave for your big trip … or once you’re overseas
  • using credit cards and debit cards internationlly
  • figuring out the fees related to the different ways of spending
  • what to do with your leftover foreign bills and coins when you return home

… and even how I got ripped off by a money changer in Bali and a “friendly” local in Bangkok (who said he just wanted to practice his English).

My hope is that you’ll feel inspired to share your best practices in the comments section below so we can learn from each other!

I’m sure other ideas and topics will crop up over time once we get started. Feel free to chime in below with your comments and suggestions. If you like this blog, and find it useful, let me know that too. It’s always nice to get positive feedback!

Let’s start with:

Foreign Exchange Buy and Sell Rates

 

20150616_181144

You’ll often see one of these Buy/Sell rate signs when dealing with foreign currency and it’s super important that you understand what they’re telling you.

This sign is one I saw posted outside a traditional foreign exchange shop in Santa Monica, California – you know, the kind where one person sits behind a counter waiting for you to do business with them.

 

Point #1—

The WE BUY AT column sets outs out the US dollar amount this foreign exchange shop will give you in exchange for one “unit” of foreign currency.

For example, using the Euro rates I circled in blue above, this foreign exchange shop will give you $1.0474 US dollars for every 1 Euro you give them.

So, if you give them 10 Euros, you will get $10.47 US dollars in return (10 x $1.0474).

 

Point #2—

The WE SELL AT column sets outs out what 1 unit of the foreign currency will cost you in US dollars.

Again, using the Euro rates I circled above, this foreign exchange shop will charge you $1.2014 US dollars for every 1 Euro you buy from them.

So, if you want to buy 10 Euros, it will cost you $12.01 US dollars (10 x $1.2014).

 

Point #3—

Always keep in mind the LOCATION of the Buy/Sell rate sign. It’s important because all the numbers on it are displayed relative to the local currency – in this case, the US Dollar.

 

REMEMBER—

If you want to get some foreign cash before you head overseas on your trip, you should focus on the WE SELL AT column.

For every 1 unit of foreign currency you want, multiply by the number you see in the WE SELL AT column and that’s how much it will cost you in US dollars.

If you’re now back in the US after your trip, with some leftover foreign bills, you should focus on the WE BUY AT column.

For every 1 unit of foreign currency you want to get rid of, multiply by the number you see in the WE BUY AT column and that’s the amount you’ll get back in US dollars.

Make more sense now?

 

Test yourself—

You’re about to fly to Japan and want to have 10,000 Japanese Yen in your pocket when you land.  What will it cost you (in US dollars) at this foreign exchange shop?

The answer is at the VERY BOTTOM of this blog entry.

 

Keep us in mind when you return from your travels. Round up all your bills and big coins from :

  • Canada

  • Europe

  • Britain

  • Japan

  • Switzerland

and convert it into retail gift cards and donations at the Leftovercash kiosk!

 

As our t-shirt says…

shirt upside

 

You can find out more about Leftovercash at: http://www.leftovercash.com/how-it-works/.

Our first kiosk is at the South Bay Galleria mall in Redondo Beach: http://www.leftovercash.com/location/.

 

Answer—

10,000 Japanese Yen will cost you US$86.20 based on the rates posted in the sign above.

So who got it right?