Currency conversion during our trip to Australia and New Zealand

Copyright 2013 John T. Reed

My wife and I took a 16-day trip to Australia and New Zealand in March. We did that because I recommend those two countries as places to put your rainy-day savings, we have put rainy day savings there and I wanted to meet my bankers finally, and I wanted to scout those two countries as places to which to flee if and when the U.S. becomes unlivable as a result of hyperinflation and the laws that usually accompany hyperinflation, namely capital controls, wage and price controls, financial repression, rationing, and anti-hoarding laws.

Capital controls typically prohibit you from possessing or using foreign currency or gold and limit your ability to remove U.S. dollars from the country to small amounts only if you travel abroad.

Wage and price controls are what they sound like but you may not realize they cause shortages and/or total inability to find the prices and services that are controlled.

Financial repression laws directly or indirectly force you to buy U.S. government bonds by limiting where you can put liquid assets to banks and forcing banks to buy U.S. government bonds which could not be sold in a free market because they have too much risk and too little real (after adjustment for inflation) yield.

Rationing limits individual residents of the U.S. to extremely small amounts of food and fuel and other necessities to try to ameliorate politically the shortages caused by the combination of hyperinflation and price controls.

Anti-hoarding laws generally prohibit possessing more of at item that you would be allowed to buy with your ration coupon.

In this article, I want to examine the currency conversion issue. While we were in Australia and New Zealand, we converted U.S. dollars (USD) to local currencies (AUD and NZD) in two ways:

• USAA Federal Savings Bank debit/ATM Master Card

• Capital One Master Card

I have been a USAA member since I was a senior at West Point. It was a consumer insurance company only open to U.S. military cadets and officers then. It has since gone into banking and other businesses and now State Department presidential appointees, children of USAA members and U.S. enlisted personnel can also join. They used to be superb customer service-wise, but increasingly they have been pissing my wife and me off and readers have also reported similar experiences. They pissed us off repeatedly on this trip.

We got a Capital One Card for the trip because they advertise that they have no fee for currency conversion. My wife first used their Master Card on a trip to China in March 2012 and was pleased.

Of course, upon hearing that they have no fee for currency conversion, we both immediately figured that they probably have a larger buy-sell spread than other credit card companies. That is a common behavior in financial markets whereby the institution in question brags about no fee or commission, but adds a bigger margin for themselves in the form of the price they pay when buying an asset from you or demand when selling an asset to you. In this case, the asset is foreign currency. Whenever we put our USAA card into an ATM to draw out local currency, we were buying local currency. Ditto whenever we handed our Capital One card to a waiter or seller of subway passes, etc.

ATM currency conversion rates

It appears that the currency-conversion rate when you use a U.S. ATM card abroad is determined by the foreign bank whose ATM you stick the card into. We used three different bank ATMs in New Zealand. HSBC charged us 83.77¢ for each NZD; Westpac New Zealand 86.55¢ to 87.1533¢ for each NZD; and ASB charged us 81.3860¢ to 83.7700¢. Lesson learned: When in New Zealand, start with ASB’s ATMs and simultaneously withdraw from one of theirs and from another New Zealand bank other than Westpac to see if you can find a better deal than ASB. Keep doing simultaneous ATM withdrawals from the latest champ (best rate) and another non-Westpac bank to see if you can find a new champ. On a $1,000 NZD withdrawal, the difference between Westpac NZ and ASB is about 5% or $50 NZD.

In Australia, we used HSBC, Westpac Australia, and ANZ. Westpac Australia appears to have been about 1¢ or 2¢ worse than HSBC and ANZ. Not enough to worry about. Australia, with 22.6 million people, is probably a more competitive banking environment than New Zealand which only has 4.4 million people.

USAA charged us 1% of the USD amount of each ATM withdrawal.

Generally, the more cost-effective way to convert USD to a foreign currency is in the form of large wire transfers from the US bank with the best currency conversion rate that day for that currency. The flat fee for a wire transfer is about $45 regardless of amount. The other cost will be the buy-sell spread on the currency conversion. In other words, how much does your bank charge you for each AUD or NZD or whatever that you buy.

Capital One Master Card

Capital One apparently reports the currency conversion rates in the reverse order. That is, instead of telling you how many USD you pay to get one AUD or NZD, they tell you how many AUD or NZD you get for one USD. For consistency, I will reverse their figures and see how much they charged us for each AUD and NZD. The most Capital One charged us per NZD was 83.13105¢; the least, 82.3750¢—a little better than ASB.

The most Capital One charged us for AUD was $1.036259; the least, $1.027500—each better than the best ATM deal we got in Australia.

What’s in your wallet? If you are going abroad, I recommend a Capital One Master Card. There is no forex conversion fee, and the buy-sell spread appears pro-cardholder to me.

USAA customer service problems

I had a lot of trouble with USAA on this trip, and a little on a prior trip to Rome in 2008. Part was my fault, but mostly USAA’s fault.

I called beforehand to warn them we would be in Australia and New Zealand from 3/5/13 to 3/19/13. I also had my wife call with regard to her ATM card and they told her “Your husband already took care of it.”

In NZ, my wife’s USAA ATM card worked, but mine did not. The problem was I assumed it was connected to my savings account at USAA, which is what I am supposed to use when I move money out of USAA to Canada or to our local CA checking account. My wife knew it was the checking account.

But that should not have been hard to figure out.

USAA is very fond of having everything go through one phone number: 800-531-2265. Once, I directed them by fax to wire money to New Zealand. I got a call from them at about 2:40 pm my time in CA (USAA is in TX) saying I needed to call them right back to confirm the wire instruction because the deadline was 3:00 PM my time. I called immediately to the number they gave me, but it was the “one number fits all” line.

By the time I finally fought my way through the excruciatingly slow, automated long list of questions about why I was calling, the deadline had passed and I lost that day’s currency conversion rate. I would have to do the wire the following day at the following day’s rate. I was pissed. I asked for a direct number so this would not happen again. No. All calls must go through 800-531-2265. In the event, the following day‘s NZD conversion rate was more favorable to me.

Now, try playing that game when you are in Australia or New Zealand. Unfortunately, I had to many times, using a cell phone to make international calls. In case you have not done it, you do not want to. I think we ran up about $100 above normal phone bill while on our 16-day trip down under.

For one thing, USAA in Texas is a very different time zone that New Zealand or Sydney. Right now, it is 9:47 PM PDST where I live near San Francisco, 4:47PM in New Zealand, 2:47 PM in Sydney, and 11:47 PM in San Antonio. The 800-531-2265 answering machine says they are closed for business after 5:00 PM CDST which is 10:00 AM in New Zealand and 8:00 AM in Sydney.

So you’d better call early.

But wait, there’s more. As I write this, it is Sunday night in the U.S., but it is Monday afternoon in New Zealand and Australia. That means USAA is closed for the two-day weekend starting Sunday morning on the Down Under calendar and lasting until 2:00 AM New Zealand time and 0:00 AM Sydney time on Tuesday!

When I finally got through and we figured out the savings account/checking account issue, they agreed to connect the ATM card to both accounts.

Then it would not work because I tried seven different times one day without success. The ATMs told me I was an “unauthorized user.”

Why did I try seven times in one day? Partly because it was not working and I did not know why and partly because a day in San Antonio is different from a day Down Under. To me, the seven tries were over a two-day period. Plus, I was not aware of a seven-times limit. I was going to different bank’s ATMs figuring it was the ATM’s fault.

When I finally go through the second time, I complained about all the trouble and they jacked my daily limit from $600 each card to $3,000 total so I could make up for the lost time. That worked fine for about two days, then it started saying I was exceeding my limit as if they had not raised it. That was the weekend back in the U.S. so I had to wait a couple of days to call.

The problem, when they raise your limit like that, it is only for two days. Bank policy.

Ah, yes. Sensible policy. Is it also your policy to not divulge that to the customer until after he starts banging into ATMs refusing to give him money again?

I complained about how hard they were to get a hold of with the single number and different hours and days and closing at five. “The ATM card guys don’t close,” they told me. They are there to help me 24 hours a day.

“Gee, that’s nice. Now how’s about you tell that to the guy who programs the automated answering machine?”

He then explained to me that you have to say “ATM card emergency” to get them after hours.

“That is not one of the choices they give you and they explicitly say the ATM department is closed after 5:00 and on weekends.”

He assured me that saying “ATM card emergency” would get them 24-7 if I said the magic words to the automated phone system that professed no knowledge of such an option as it slowly laid out other options at international cell phone rates.

That’s great! An unlisted emergency number. I’ll bet that helps them keep expenses down in San Antonio.

Rome, too

When I had a problem in Rome it was because I had to get a lot of cash to pay my hotel bill in cash. In Rome, they give you a big discount if you pay in cash. And when in Rome… (You get a small discount when you pay your hotel bill in cash in Australia. Maybe New Zealand too, but we stayed with friends there all but one night. That was in the Novotel at the Auckland International terminal where we did not think to ask about a cash discount.)

So in Rome, I started taking out extra cash in my last several days to cover not only normal expenses but also the hotel bill—which I had paid by credit card in London and Paris on that same trip. Then the ATM card stopped working.

I had to call San Antonio from Rome using a calling card from a pay phone.

“What the heck are you guys doing? I told you I was going to London, Paris, and Rome before I left. I gave you the dates. You said it would be fine. Why have you put a stop on my credit card?”

“The amount being taken out suddenly went up.”

“So. It’s still below my daily limit.”

“Well, we just thought it might have been stolen.”

“You were wrong.”

“We’ll remove the stop.”

“Grazie.”

I suspect there are other banks that do not route all calls through the same number, that do not keep secret their 24-hour emergency number, that are more geared up to handle this sort of business. I would appreciate hearing from frequent international traveler readers about better banks for ATM cards to use abroad.

Here is a face book response from a reader:

John, I wanted to comment on your article "Currency conversion during our trip to Australia and New Zealand". (http://www.johntreed.com/Currency-conversion-in-Australia-and-New-Zealand.html) You asked "I would appreciate hearing from frequent international traveler readers about better banks for ATM cards to use abroad."

I live abroad and travel a lot. I spent a lot of time researching this very issue. I also opened accounts at several banks and credit unions before I left the United States. I chose the banks based on researching reports by travelers on the Internet.

After I moved abroad, I did controlled experiments with my stack of ATM cards. I would withdraw a fixed amount at the ATM, and then go look at the exchange rate on the Internet. Then I determined how much I would have gotten in a fee-free transaction and how much I actually got and put it all in a spreadsheet.

The worst card was Chase bank. They charged $5 plus a 3% currency exchange fee. (Ouch.) All big banks are like them: they ding their customers for everything.

Somewhere in the middle were local credit unions, whose fees averaged 1%-2%. I was disappointed to find that the low-cost Internet ING bank (Now part of Capital One and called Capital One 360) also charged about 1%.

The best cards were these listed below. They had fees averaging about 0.25%. I have no objection to paying 0.25% to get cash: it's quite reasonable.
State Farm Bank
Associated Credit Union (Atlanta, GA)
Fidelity Investments "cash management" account and brokerage account
Charles Schwab Investor Checking

I have two cards from Fidelity and each has a withdrawal limit of $1000 a day. So I can get up to $2000 a day if needed. (I also keep a few hundred dollars in each of a few other accounts so I can get a lot of money in an emergency if needed.)

I have problems similar to yours with cards getting shut off for "suspicious" activity. Changing your behavior in any way can trip them. (Once I got my card deactivated just by using a different bank in the same city.) However, once you're settled in somewhere and using the same ATM at the same back, the system seems to figure out that the transaction is no longer suspicious. This is another reason why a "stack" of cards is convenient: if one card gets frozen I still have access to money on another card while I resolve the issue with the bank.

I tried doing wire transfers in the beginning, but I found it to be more expensive, slow, non-transparent and annoying. Even though my broker charged a fixed $20 fee for an international wire transfer, somehow more fees would be deducted before I saw the money. (Probably by "correspondent banks".) The exchange rate at my foreign bank was not favorable (2% spread), so I'd have to withdraw money in dollars and then go to a currency changing kiosk. (I could change banks, but that would require returning to the United States to notarize a different standing letter of instruction.) The transfers usually took 2-3 days.

Changing the topic somewhat: you mentioned that you racked up $100 in international toll charges. John, anyone traveling extensively needs Skype. I call the United States (and all over the world) from anywhere in the world for just pennies per minute. I have a bluetooth headset for my notebook and I also have skype installed on my smart phone.

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