Currency Exchange

When you travel to Japan, you need to use their currency of course (see currency).

Americans have gotten into the habit of using credit / debit cards for almost all their daily purchases. That strategy is not a very good one in Japan.

The Japanese are big on cash. They routinely carry the equivalent of $200-$300 around on their person (at least, the middle class do). Credit cards are not widely used except in the major establishments of the major cities. Even many tourist spots like ryokans or restaurants might not accept credit cards.

 

Charging for goods and services: credit cards and debit cards

When you can use credit cards, you want to get the best value. Most credit cards add 3% to the foreign exchange rate. A known exception is Capital One's Venture and Venture One cards.

There are literaly hundreds of credit and debit card products out there, and this is a constantly changing field. It is impossible to do exhaustive research (and it's exhausting, too!). So, we recommend you talk to the customer service reps for the cards you currently hold and find out:

• If you charge an item on the card, what fees are involved (transaction fee, currency exchange fee, etc.)
  
• If you get money from an ATM, what fees are involved. Note: for credit cards, ATM monies are considered loans, and interest accrues from day one at their classic rates (high rates, like APR of 29% or more!). Debit cards don't have this drawback.

 

Currency exchange: cash vs. ATMs (credit and debit cards)

As far as cash goes, the question is: where can you get the best deal in exchanging dollars to yen? There are lots of sources of information, and below you will find the most relevant as of this writing.

Check out this site that has the current interbank rate. The exchange rate at Narita is better than you will get for cash in the States. (No checks are accepted, except traveler's cheques.)

Also note that in Japan you will generally get a slightly more favorable exchange rate for traveler's cheques than cash! Typically about 2 yen per dollar better. If you can get your traveler's cheques for free, then it might be a viable option for you.

Local banks in Japan will generally give a worse exchange deal than at Narita. Similarly, currency exchanges in cities will be more expensive.

As far as using an ATM for a cash advance, be aware that ATMs are not widely available, and often they will not accept foreign credit cards (although this is changing). This is not a problem at the airports, and most post offices have ATMs that will accept foreign cards. Lately we have had good luck finding ATMs that work for us at 7-11 stores!

In addition, you might have to pay a transaction fee; for most cards, the fee is the higher of 3% or $10; this is in addition to any currency exchange fee.

The main concern with ATMs is that if you use a credit card, you are getting a cash advance that starts charging interest immediately, at a fairly high rate (typically around 29.5% annual rate).

Note:, Capital One does charge an exchange rate fee for cash advances at foreign ATMs. Their no-foreign-exchange-rate policy only applies to credit card purchases of goods and services, not credit card cash advances.

But, when you use a debit card at an ATM, the money comes straight out of your checking account. Interest is not charged. A foreign transaction fee might be charged; (Schwab does not - see below, and at least some credit unions do not charge foreign transaction fees, so ask).

This "money conversion" issue probably does not have a one size fits all type of answer. Take some time to do research for your circumstances.

 

The best deal for using ATMs for cash advances / currency exchanges

OK, here is what seems to be the best deal: Schwab Bank High Yield Investor Savings

This account has no minimum balance, provides a small interest (currently .4% APY), and has these especially enticing features for the debit card you get: 1) there is no charge for using ATMs anywhere in the world; 2) if you use an ATM that charges you a fee, Schwab will reimburse you the next month; and 3) (an undocumented feature) there are no currency conversion fees: you get the interbank rate!

Note: there are some limits: $1000 / day ATM withdrawal; you are only allowed six debit transactions (that is, charging for goods or services) per statement period.

For more information go to:

Schwab Bank High Yield Investor Savings

 

The bottom line

So here is a summary of the most effective way to deal with currency exchange on a trip to Japan:

• Get a Schwab savings account and use the debit card to get yen from ATMs
  
  
  Alternatively, check with a credit union, if you are a member or elegible to become a member
  
  
  Alternatively, Capital One has a checking account that has a debit card with no ATM charges and no currency exchange fees!
  They reimburse ATM fees up to $10 per month (the Schwab card has no stated limit)
  
  
• Get a Capital One Venture or Venture One credit card for charging good and services
  
  Alternatively, check with your credit or debit card carrier for their rates
  
  
• For backup, get travelers checks (if you can get them for free) or just bring cash

 

Finally: get some perspective. Do not rearrange your personal financial tools if it is just for this trip! The actual costs, charges, and fees might add up to $100. Maybe. Maybe less. So consider the trade-offs for you personally in terms of costs vs. hassle. If you will be doing more travel, especially internationally, it might make sense. But if you don't think you will use any of these recomendations after this trip, then maybe you should just not worry about it.

 

You might consider these additional resources

• Bank Direct, an online bank, has an excellent American Airlines rewards affiliation; their exchange rate seems to be a little less than the interbank rate, and they only reimburse up to 4 debit ATM accesses a month, but they provide many ways to add to your AAdvantage account if you are an American Airlines fan.
  
  
• Here is an excellent site for comparing credit cards

 

Caveat: all the above information is accurate at the date of writing, but things change. So always verify information fairly close to your departure date.