Friday, 4 November 2016

Getting the Best Bang for Your Buck When Converting to Yen

FYI, yen is best purchased IN Japan. If you didn't know this already, I just exploded your brain with this little info-bomb.

Now, before we go any further, know that I'm not a finance maven. I don't study economy or work in banking and most of this is simply just information I've gathered over the years to try to obtain a better rate for my own trips. If you have any tips or tricks to add, please don't hesitate to comment! The finance landscape is changing fast and some of the options I've mentioned didn't even exist 2 years ago and I've no doubt that new options will appear in the near future.

First off, resist the urge to travel with a ton of yen already purchased before you leave home. For one, while Japan is extremely safe from petty crimes, you're more likely to lose or have the money stolen before you get to Japan than while you're there. If you absolutely can't deal with the anxiety of not having a little local currency in hand when you begin your trip, skip down to the very bottom where I've listed best spread that I've gotten from various methods and only exchange the absolute minimum required to keep you calm.

Since banking and finances terms are not things most people go out of their way to learn unless they have to, here's a little glossary to explain terms I use in this post.

Forex: Just short for "foreign exchange".
T/C: Travellers' checks. Yeah, those ancient things.
Spread: Since exchange rates are constantly in flux, it's hard to calculate how much extra someone is charging you when you don't know for certain what their baseline exchange rate is. Instead, most people judge how good the offer is by using the difference between the buy and sell rates as a percentage of the overall rate. Half is the "spread" is approximately what you're basically paying as a "fee".
For example. Let's pretend that $1=100yen for simplicity sake. If the buying rate is $1=101yen (the company/bank will give you $1 to purchase 101yen from you) and the sell rate is $1=99yen (they get $1 and give you 99yen), then the spread is 2%.
The company/bank can claim that they don't charge any fees, but if their spread is not 0%, then they basically still earned half of the spread, 1%, from your foreign exchange transaction.

Use credit card perks to your advantage

If you're staying in the big city, most places will take credit card. If you have a no-foreign-transaction-fee card, you're gold. If you have one that gives you cash back on top, even better! I'm Canadian, so I can only offer knowledge on the top end Canadian credit cards (though the Chase Amazon Visa I'm about to talk about is just a Canadian copy of a card with the same name that has long been available in the US, so if you're American, start with the Chase Amazon Visa and see if you can find anything better). As of 2016, the top cards for foreign currency purchases are the Chase Amazon Visa (no foreign transaction fee+1% cash back) or the Rogers MasterCard (usual 2.5% foreign transaction fee+4% foreign currency cashback = 1.5% overall cashback). Not only are you not paying extra forex fees on these, you're actually accumulating cash back at a pretty good rate.

The Rogers card can get a little confusing though. At first, it claims that you can only use your cash back to pay Rogers and Rogers partner company bills and purchases, but it is possible to use the cash back as a monthly statement credit, once you've accumulated $20 or more in cash back, by calling the customer service line or using the app. If you're a Rogers (or partner) client though, applying the cash back to your monthly service bill is honestly the easiest way to use it without needing to do any extra work or even having to download the app.

Be careful if you have other credit cards though. If you're not getting at least a 1.5% cash back on regular credit cards (without the special no foreign transaction fee perk), the 2.5% foreign transaction fee will cause quite an unfavourable rate. That said, even if you don't have one or both of the above mentioned cards, there are tons of credit cards that offer 1.5% or more in cash back (or point equivalent), so if you have a decent credit score, it might be worth your while to look into a new card to add to your wallet's arsenal.

Japan is still largely a cash society, so make cash work for you

For cash, there are ATMs in the airport and at all 7-11s/Japan Post which can handle Cirrus/Diamond Plus network cards. Almost all Canadian and American bank issued debit cards are Cirrus or Diamond Plus network. To find out if your card is on one of these networks, check the back of your debit card for the Cirrus (double circle) or Diamond Plus ("diamond" though looks like a kite) logo to confirm.

There is no Forex spread for most debit cards, just interbank rates and at worst, a foreign ATM fee from your bank. If you have a high tier "all inclusive" TD/BMO account, foreign ATM fees are waived, or Tangerine and some other low-fee banks only charge $2/foreign ATM withdraw instead of the usual $5. You may need to special order one of TD's old no-chip cards though since the current chip cards don't work in Japan and TD has been in denial for over 2 years. (They may have FINALLY fixed it, but so far, I've only heard one person succeed in doing so, but the old no-chip card almost never fails and is free to obtain concurrently with a modern chip card.) To survive on debit withdraws, raise your withdraw limit before you go so if you do have to pay foreign ATM fees, you can max out your withdraw to disperse the fees. For example, assuming $1=100yen for simplicity sake, if you withdraw 10,000yen and pay a $5 ATM fee, that's equivalent to a 5% fee. If you withdraw 50,000yen and pay $5 ATM fee, that's a 1% fee. 100,000yen would be only 0.5% fee, etc.

Make sure that your bank DOES NOT handle the forex. Bank of America handles the forex under the guise of a favour to its customers, but what actually happens is instead of having the no-fee Japan ATM handle the forex, BOA charges a high fee (~6% spread) to handle the forex instead. The only time that such a service is actually working in favour for the customer is if you have to use a privately owned ATM that charges out the nose for forex. In Japan, this will basically never be the case because some of the most popular ATMs are 7-11 and Japan Post, so it's almost unheard of that neither can be found within a reasonable distance.

One other decent alternate is if you have USD and an all inclusive bank account or something else that gives you access to no-fee USD travellers checks, those have the next best rates at basically a 1-1.5% fee. They're taken at the airport forex kiosks (Haneda/Narita ones are run by major bank, not independent forex companies like you find here). You can also get them exchanged at a number of major bank chains and a strange little chain shop call Daikokuya (literally the kanji for "big black room"...not sketchy sounding at all LOL). I like Mizuho Bank cause they're everywhere and their forex counter is always convenient and has no line. This is only useful if you absolutely need cash, already have USD in hand and have absolutely no useful cards, debit or credit. Fair warning, the rate mentioned is literally ONLY for USD T/Cs in Japan. If you have cash or T/Cs in other currencies, you'll get a much worst rate.

Avoid exchanging locally, but if you must...

If you absolutely can't bring yourself to travel without some yen in hand, or just want a small amount to get your trip started (especially if your flight arrives outside of the airline terminal bank kiosk hours), check around to see if any of your friends who have been to Japan have any leftover yen that they can sell you at the interbank rate. This will save a little in fees on both ends if they need to exchange their leftovers back into local currency anyway. If this isn't an option, just know that not all forex kiosks and companies are built equal. Generally, the ones with the best rates are the ones who can buy and sell in the largest quantities. That means if you're looking for yen, check forex companies that specialize or often work with Asian currencies or populations. They will not only be more likely to have better rates, but they're more likely to have yen on hand. In the event that they don't, almost all of them will be happy to let you place your order over the phone and they can notify you when the cash comes in or hold what they have on hand until you to go pick it up. Ordering in advance also guarantees the rate, which is often slightly worse for walk-ins. You may want to call up a bunch in your area to compare their rates right before you order. Forex rates change fast, so if you're going to shop around, be sure to call fast and keep each conversation short. Once you decide, call to have the rate and cash held for you right away. The companies usually require that you pick up same day or within 24 hours, but if you're nice and polite, they can be more flexible.

Don't even bother with bank exchanges, even if you're desperate

Just don't. The rates, even employee rates, are usually awful and they almost never have yen on hand. Even super last minute, you're almost always better off checking forex kiosks/companies in Asian areas (ie Chinatown, Koreatown, etc) or at tourist areas (ie the airport). Otherwise, you can bring a handful of CAD$ T/Cs and exchange them at the airport or a bank in Japan. There are few sources that will offer less favourable rates than banks, so make sure to remember this even if you've remembered nothing else from here.

As a quick reference, from worst rates to best:
- Typical banks usually offer a 6-7% spread on buying/selling yen (sometimes the rates are even worse than this).
- Bank employees and forex kiosks might be lucky to get 4-5% spread on yen.
- CAD T/C cashed at a Japan bank is ~4% spread.
- B2B (for large quantity currency exchanges) forex companies usually offer 3-4% spread.
- USD T/C cashed at a Japan bank/Daikokuya is 2-3% spread.
- Debit with no foreign ATM charge is flat 0 for interbank rates.
- Cash back credit cards comes with net cash back instead of fees.


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