Hedging future trip to England

[hotwired]

Good morning
I am wondering if there are any reasonable, conservative ways to invest in foreign currencies, for the purpose of hedging expenses for a future trip to the uk. For example, opening a uk-based CD or savings account with the amount of money that the trip may cost. The trip is far enough in the future where we can't quite consider pre paying lodging and other expenses now. I know the ship has sailed where the pound was dang close to being at parity with the dollar back in September but it's still not bad at $1.24.

Obviously I don't want to eat up my hopeful profit with fees, but maybe a British pound-based currency ETF would be the simplest bet?

Thanks!

 

[Sunset]

Years ago when traveling, I was in Gibraltar, so I withdrew from the ATM some British pounds to have for when we went to the UK.

Now it's been years, as Covid cancelled our trip, and timing has been bad, so I still have my pile of pounds.

Considering the interest this could have earned, and the fluctuating currencies, it's been a stupid idea for me to do.

 

[braumeister]

Considering the interest this could have earned, and the fluctuating currencies, it's been a stupid idea for me to do.

I agree it's not worth the hassle.

 

[Sarah S]

If anyone has old British bank notes they are probably withdrawn from circulation. They do this regularly. It is possible ( at least for a while) to exchange them but it is annoying. I had to send them to a place in London and in due time got a cheque. If you have a single note or just a couple and it is not too outdated the currency exchange places will do it or your friend or family’s bank. You can check here to see current notes https://www.bankofengland.co.uk/banknotes/current-banknotes

 

[braumeister]

If anyone has old British bank notes they are probably withdrawn from circulation. They do this regularly. It is possible ( at least for a while) to exchange them but it is annoying. I had to send them to a place in London and in due time got a cheque.

You can take them into any bank over there and exchange them for current notes. I've done it more than once.

A funny incident was when I found a few old one pound notes in old file cabinet. I brought them in on my next trip over.

The young tellers had never seen one before and I had an amusing ten minutes watching them call their supervisors before they finally got educated and handed me some modern one pound coins.

 

[Alan]

Good morning
I am wondering if there are any reasonable, conservative ways to invest in foreign currencies, for the purpose of hedging expenses for a future trip to the uk. For example, opening a uk-based CD or savings account with the amount of money that the trip may cost. The trip is far enough in the future where we can't quite consider pre paying lodging and other expenses now. I know the ship has sailed where the pound was dang close to being at parity with the dollar back in September but it's still not bad at $1.24.

Obviously I don't want to eat up my hopeful profit with fees, but maybe a British pound-based currency ETF would be the simplest bet?

Thanks!

You could open a Wise account, and have account(s) in multiple currencies (their so-called borderless accounts). For example you could have an account denominated in GBP, with a UK bank sort code and account number, and a UK debit card against that account. If you have a trip planned you could then put some money in the account at today’s exchange rate to be spent while on your trip. Our daughter and her partner have such accounts. She used hers to easily pay bills ahead of her move back, as she had a number of expenses before actually becoming resident, and she could pay them UK bank to UK business rather than having to a forex payment every time.

https://wise.com/

 

[marinauser]

Just go to your local Chase bank if you are in a major city and buy pounds. In cities like Chicago and New York the exchange rate has not been too bad in my experience. I would think that any major bank in one of the major cities has similar access.

 

[audreyh1]

The US bank premium on exchange rate is super high in my experience.

 

[braumeister]

The US bank premium on exchange rate is super high in my experience.

I agree. Had a terrible rate the one time I used Chase to buy foreign currency. My normal approach is to use my Schwab debit card at an ATM at the destination to get foreign currency. Excellent exchange rate in my experience, and no fees of any kind.

The only things you need to remember are to try to use an ATM inside a bank to avoid the possibility of a skimmer installed, and to never use an ATM at the airport when you arrive -- they almost always have the worst exchange rates anywhere.

 

[bigreader]

Exchange Rate and Transaction Fees

To me, there is no reason to hedge. Of course, I didn't hedge currency for the years when I was living and working in Europe. My view is that some days you eat the bears and some days the bears eat you. . . .

I do pay attention to what exchange rate gets applied and the amount of transaction fees. Here is my approach:

If I need cash, I use my bank debit card at local bricks and mortar bank's ATM. You may not find one at the airport, but that's usually OK since you probably don't need cash to get to your hotel. My bank doesn't charge for this transaction, repays me the fees charged by the foreign bank and gives an OK exchange rate. During my recent post-COVID travels, I used a lot less cash and a lot more credit,but YMMV. I travel with 2 different ATM cards.

If I can pay by credit card, I pay in local currency. My credit card has no foreign transaction fees and the exchange rate is OK. Merchants and even banks at ATM machines will suggest that you let them convert your purchase/withdraw to USD. I always decline since the exchange rate is poor. I travel with one Visa card and one MasterCard.

If I need to pay a bill in local currency, I also strongly recommend Wise. I go to language school frequently in Europe and I can pay their bill in local currency with low fees and a very good exchange rate. For example, if you want to pay a tour agency or lodging in cash for a discount, Wise is the way.


I hope you have a good trip, BR

 

[DrRoy]

You are as likely to lose as to gain, and you get better exchange rates in your destination country.

 

[audreyh1]

You are as likely to lose as to gain, and you get better exchange rates in your destination country.

+1 good summary!

 

[Sunset]

If anyone has old British bank notes they are probably withdrawn from circulation. They do this regularly. It is possible ( at least for a while) to exchange them but it is annoying. I had to send them to a place in London and in due time got a cheque. If you have a single note or just a couple and it is not too outdated the currency exchange places will do it or your friend or family’s bank. You can check here to see current notes https://www.bankofengland.co.uk/banknotes/current-banknotes

Thanks, I'll have to check... maybe I'm holding old notes...

This is a BIG danger of holding actual currency for any foreign country.
A peron would never know if they may suddenly declare the currency invalid after a certain date, which has happened for some countries.

 

[braumeister]

TA peron would never know if they may suddenly declare the currency invalid after a certain date, which has happened for some countries.

Switzerland is one country I know of that has hard and fast rules for obsoleting their currency. But most countries give plenty of notice so it doesn't come as a shock.

The Bank of England guarantees that they will always honor their old notes, just like the US.

 

[Sunset]

Switzerland is one country I know of that has hard and fast rules for obsoleting their currency. But most countries give plenty of notice so it doesn't come as a shock.

The Bank of England guarantees that they will always honor their old notes, just like the US.

Good to know about England.

I read India has done it a few times and invalidated the old currency. Even if its in the news, in some country, chances are folks here wouldn't even see the news. The last time it caused huge problems and huge lineups at the banks.

If a person did see the news, making a trip to the country to convert the money would probably not be convenient or even worth the money unless it was by luck an already planned vacation.

 

[braumeister]

I lived in Brazil during the hyperinflation of the 80s, and they would periodically, without much lead time, change the name of the currency and lop three zeros off the value of the old notes. So a new bill would be worth only 1/1000 of what the old bill of the same denomination was worth. I can vividly remember times when the smallest denomination note in my wallet was a "5,000" which was barely enough to buy a hamburger. At the time, other countries, such as Peru, were in even worse shape. We won't even discuss the later situation in Zimbabwe.

But that sort of inflation has become increasingly rare these days, something we're all very grateful for, despite our grumbling about the inflation we do experience.

 

[MrEd]

currency hedge

i travel to europe and the uk frequently:

invesco funds:

fxe euro hedge

fxb pound hedge

 

[bigreader]

i travel to europe and the uk frequently:

invesco funds:

fxe euro hedge

fxb pound hedge

Can I ask how this works? Do you buy an amount in each fund that is roughly equal to your travel budget for some period?

Thanks, BR

 

[Involuntary Retiree]

I never even thought about this, so thanks for something new to ponder. My Wise account would work great for this!

 

[MrEd]

an I ask how this works? Do you buy an amount in each fund that is roughly equal to y

I place aside the money I think i need for each visit periodically.

For example, if the euro falls in value I maintain the funds in the euro mutual fund and pay out of pocket to take advantage of the weaker euro without taking a loss in the mutual fund.

if the euro rises substantially I will cash out of the euro mutual fund at a profit and use those funds to travel with.

The funds act as a hedge. Dollar cost average in.

Alternatively, I was just in Greece a few months ago when the euro as 1.05 I decided to take out a couple of thousand dollars at a Greek Bank where I could get a decent rate and use it for my next trip.

If you think over the next couple of years U.S. interest rates will decrease that would translate into fxe and fxb gains.

 

[audreyh1]

Wow, sounds like you’ve really figured out how to do this!

 

[FREE866]

Wow, sounds like you’ve really figured out how to do this!

hahahaha

 

[bigreader]

I place aside the money I think i need for each visit periodically.

For example, if the euro falls in value I maintain the funds in the euro mutual fund and pay out of pocket to take advantage of the weaker euro without taking a loss in the mutual fund.

if the euro rises substantially I will cash out of the euro mutual fund at a profit and use those funds to travel with.

The funds act as a hedge. Dollar cost average in.

Alternatively, I was just in Greece a few months ago when the euro as 1.05 I decided to take out a couple of thousand dollars at a Greek Bank where I could get a decent rate and use it for my next trip.

If you think over the next couple of years U.S. interest rates will decrease that would translate into fxe and fxb gains.

Thanks for that explanation. I get a mini-pension payable in euros and I am always on the hunt for different approaches on managing it.

One thought. If you're in those funds just to hedge your vacation money (i.e.,. it's not a part of your investment strategy) you might want to look at an account at Wise. You can hold lots of different kinds of currency and it might be a bit cheaper or more convenient than tapping the funds. You can even get a debit card from Wise. I wouldn't put money I couldn't bear to lose in Wise but it has been a great solution in my situation.

BR

 

[phil1ben]

For most of the past 10 years we have traveled to Europe for 2-3 weeks per year. Although this is not a hedge, this is what I do. After each trip I keep about 750-1000 Euros or British pounds and return back to the US with them. I keep them in a home safe and use them for the next trip returning with the same amount each time, using ATMs to draw additional money as needed. It has the added advantage of not needing to exchange cash as soon as I arrive.

Most expenses during each trip are charged to a credit card with no foreign transaction fee but I like having some cash for purchases at antique stores, food stands or outdoor markets. I also keep lesser amounts of currency for the Czech Republic and Israel.

Remember when paying with a credit card in Europe always choose the pay in Euro or Pounds option rather than agreeing to the immediate exchange rate offered by the machine (i.e. paying in dollars). Also, decline the exchange rate option in ATM machines. The cards I use provide close to the market exchange rate rather than the non-market rate offered by the credit card companies or ATMs at the point of sale.

Frankly, I would say I am about even concerning the exchange rate.

 

[audreyh1]

We also bring some Euros back.

We do use quite a bit of cash in Europe - some of the B&Bs want cash, and the small group day trips we favor definitely prefer cash and ask for it. We also leave tips in cash but these are relatively small.