In an increasingly globalized world, borders are becoming less and less significant. This is especially true in terms of commerce, as well as for nomadic workers. Products can be bought and delivered from one country to another without waiting months. Digital products can make it across continents immediately.
And, with a huge freelancer marketplace throughout the online world, jobs are not regionally limited.
All of this has the effect of making currency exchange quite important. It also means that banks and other companies have found ways to take advantage of currency exchange. While it’s easier than ever to buy products or earn in a foreign currency, there are some caveats.
This is what they don’t tell you about foreign purchases and foreign exchange.
Exchange rate is not fixed
You’d be forgiven for thinking that exchange rate is an objective value that everyone has to play by. After all, if you ask Google the exchange rate of a currency, it will give you an up to date, very specific response.
However, banks and other foreign exchange companies do not have to stay strictly to what is known as the midmarket rate. In fact, it is standard practice for banks to offer exchange rates that always penalize the customer. It’s a sneaky way for them to add hidden fees, and it’s perfectly within their rights. That’s why the Visa international exchange rate is almost always less advantageous than Mastercard’s. They simply set it according to their own calculations of how much they think they can benefit.
Companies like Transferwise have promised to do away with these hidden fees, and a very specific niche has opened up. While they don’t have to stick to midmarket rates either, it’s their main draw and raison d’être.
When it comes to foreign commerce, however, you’ll just have to pay what Visa or Mastercard tells you.
Fees are largely made up
Another impression that banks have sold us is that international money transfers cost, and you’re going to pay a heavy price for them. But again, banks are counting on the fact that most clients don’t know anything about money transfer. The ubiquitous fees are pretty much made up by the banks. It’s totally their prerogative, just as it’s your prerogative to choose an alternative.
Of course, that’s easier said than done. While fintech companies are trying hard to fill up that niche, it’s still way easier to use your bank, and you may well be willing to pay for the convenience.
Also, when you’re spending your money in a foreign country, you’ll just have to roll with the punches. Unless you spend parts of the year in different countries, you probably don’t have a local bank account in the region you’re buying from or traveling to.
Ultimately, foreign purchases and foreign transfers don’t work in the way banks want it to seem. When it comes to deciding which bank or credit card to sign up for, take this into account. There may not be much you can do about it, but it’s worth knowing that the rates they offer are not set in stone.