Exchange Rates and Using Credit Cards Internationally

How do we get the “BEST” exchange rates?*
Cash? … ATMs? … Casa’s de Cambio … … The Bank … ??
This article describes the ins-and-outs of changing money in Mexico and the USA … how to get reliable exchange rates … and how our credit cards, bank debit cards, storefront exchange shops, and ATM systems actually work.

Some “expat experts” proclaim their own personal, oft-repeated myths:
~~ Credit cards *always* get you the “best” exchange rates. ~~
~~ Credit cards *always* get you the worst exchange rates anywhere in the world. ~~

~~ Cash is KING ! ~~

(our favorite) ~~ MY Bank doesn’t charge ANY fees for exchanging Dollars to Pesos**  ~~

~~ ATMs are the   ONLY   way to go! ~~

~~ I get the BEST rates by checking the box on the ATM that says:
No,  I don’t want the fixed exchange rate.

~~  Casa’s de Cambio ROCK ! ~~

Seriously …
**Is anything really  **free**  … especially with Big Banks … & Big Business … ?


aka Inconvenient Math:
Definitions of .  .  .  Buy rates, Sell rates,  Mid-Market Rates and “The Spread” .

Banks must make money. …  Bank customers love to think they’re getting things for FREE.   … “Free-stuff” from Banks used to mean cheap toasters, cheap clocks, cheap coffee travel-mugs …   Notice that Banks do not even give away these cheap chatzkies anymore,  because, since Banks got kicked out of the Wall Street casinos … Banks are now fighting to make~take every penny they can.

First: Realize that every time you exchange money … there are 3 parties … and four (4) $$ values involved. … For learning purposes, Let’s imagine a $100 USD to MXN peso hypothetical example.
~  There are various sources of “official exchange rates” that are actually called the “Mid-Market rate” … that is a mid-point    $Dollar: $Peso    “exchange rate” that people talk about … like what you see on Bloomberg … or, et al.  (e.g.  “$19 : $1” )

Billetes Lugares 10 Pesos ©Arturo Ortiz

~  First:  The American~Canadian  “Buyer”  buys MXN Pesos at a price (exchange rate) that’s called the “Buy Rate”  … The “Buy Rate” is generally between 0.5% to 2% ABOVE the published “Mid-market Rate” … so the Buyer pays $100 US Dollars to get an actual $98 worth of MXN Pesos.

Why pay $100 dollars to buy  only $98 dollars worth of Pesos?  Because Big Banks must make money,  the “Buy Rate” is never the “Mid-Market Rate” … The Banks or exchange brokers must make money .  … Nothing is **free** …

~ Second:  There’s another person-business (somewhere) who is source of those MXN Pesos … That person-business “Seller” who is SELLING those same MXN Pesos, pays a “Sell Rate”  to the Bank,  a “Sell Rate” that is 0.5% – 1.5% BELOW the “Mid-Market Rate” …    In our example,  the Seller sells $100 dollars worth of Pesos,  but the bank pays them just $98 worth of US dollars.

Notice that the exchange-broker, Bank, Casa de Cambio just took a $2 cut of both the Buy and the Sell transactions – charging a slightly higher Buy Rate to the Buyer, while paying a slightly lower Sell Rate to the Seller … The difference between the Buy Rate and the Sell Rate is called
…  The “SPREAD” …

In our case,  the Bank quietly took a total of $4 … (the Spread), by charging the Seller more Pesos, and by giving the Buyer less Pesos … just by using slightly different exchange rates for the Buy Rate vs. the Sell Rate. …. Typical spreads are a net 2% total, where the Banker quietly takes $1 from the Buyer, and taking $1 from the Seller, to keep $2 total on every $100 dollars worth of “exchanges” …

~ The “Spread” is the vigorish – the under-the-table CUT that Banks quietly take ON EVERY EXCHANGE …   EVEN the customers who imagine their Bank gives them  **Free**  “No Fee” exchanges …  are paying the Banks the SPREAD  that’s built-into … hidden inside… (almost)    every exchange transaction.

…   Typical bank customer … waiting …. to be served …

Now that we have learned some of the basic terminology – definitions –  We can now explore ~How to SAVE money, by saving 1% – 5% …  ~How to minimize the exchange-charges.~ … ~What are all the SIX (6) different kinds of “exchange rates” ?
…   and …
~ How can you trade US dollars for Pesos in transactions that are 2% to 5% better than the “exchange rate” ??

Billetes Lugares 50 Pesos ©Arturo Ortiz

*    *    *    *   *    *
To do better…
How many readers have realized the profound flaws you may have in your understandings of exchange rates?   … and profound flaws you likely have in your understandings of the 6 kinds of exchange rates ?

When we’re newbies to these things …. most of us
imagine that there is some magic single “exchange rate” …  while in reality … real exchange rates are determined at least 6 different ways.

1. The first way & most common way that real exchange rates are determined is exactly like the Stock Markets, where there is NO OFFICIAL price for a stock (ever) …  NOR is there a single magical official exchange rate. 

The vast majority of REAL exchanges are done when Buyer “A” offers to buy MXN Pesos at a certain “Buy” exchange rate, and Seller “B” agrees to sell that many Pesos at a similar “Sell” rate… and the BANK or Exchange House (like handles the deal, and TAKES A CUT (called the spread) from both the Buyer & Seller.
(See the Definitions above if you don’t understand these terminologies or realities.)

These vast majority of exchanges take place in real time … with shifting  Buy & Sell rates, second by second… minute by minute … ALL DAY LONG … These “exchange rates” are FLOATING all day – and ALL NIGHT … These are called the “Spot Rates “, and they can fluctuate WILDLY,  even within a single morning or afternoon …
=> aka The Wild Wild West of money-exchanges by commodity traders or day-trading stocks.

The people who imagine that  they get “The Best Rates” when they select the option of “No specified rate at an ATM”   … In reality … they are taking a CRAP-SHOOT on whatever the next upcoming floating exchange rate value may float up or down to

… AND … the banks (ATMs) are also simultaneously taking an additional %cut (the spread) on both the Buy & Sell

… AND you’re paying an additional ATM fee of $2 or $3 … HILARIOUS?  or   Sad… ??

Are BLIND … CRAP SHOOTS … taking whatever that moment’s possibly wildly fluctuating … floating SPOT RATE … “the BEST way ”  ??

If you’re “lucky” that moment of that day, then yes, just like playing the slot machines  …  you can win… If you’re unlucky that day … you lose… losing money simultaneously in 4 different ways.

Merry Christmas

2.   A second type of “exchange rate” is one that is predetermined by an agreement between 2 parties.     If I, (Steven Fry)  agree to sell pesos to  another fellow (let’s call him Grant) at some mutually agreed upon rate …    THEN Grant can win big, if Steven offers to give Grant a high rate that is far from that day’s or week’s other more common exchange rates.

In the real world … Individual parties are FREE to agree on whatever exchange rate they want.

That’s the kind of exchange rate that happens,  when you go into your MEXICAN branch bank, and ask what SPECIAL exchange rate that Mexican bank’s central exchange office is willing to pay me (or you)  that morning… or that afternoon…  These are “SPECIAL ONE-TIME OFFER” rates.

Typically, Mexican banks’ central offices determine those “Special One-time Offer Rates” … twice a day … Mornings & Afternoons.

It’s a fun niche of Free Market economies … These client (account holder) with the Mexican bank  “one-time special rates” often have NOTHING to do with the floating spot rates of live trading on XE . com … These special ONE-TIME exchange rates also have NOTHING to do with the US banks, nor the Mexican Central Bank aka Banxico…

When a Mexican bank thinks the MXN peso is temporarily too high, They then SELL Pesos at better than published Mid-Market exchange rates,  because they want EXTRA US dollars – Which means they buy US dollars today,  when the Peso is artificially briefly strong …. and then when the Peso falls in 2 weeks … they’ve just made a shit-pot load of money, by taking a small previous risk of selling Pesos at below “Mid-market rates” two weeks earlier…

Billetes Lugares 200 Pesos©Arturo Ortiz

3.    The 3’rd kind of “official” exchange rates … less used …  are published daily … by Banxico (the Central Bank of Mexico) …  Banxico’s official rates are determined based on an average of the PREVIOUS DAY’s exchange-floor spot-trades at et al

See the official Mexican Govt. Banxico web page on this:–exc.html

1/ The exchange rate (FIX) is determined by Banco de Mexico as an average of quotes in the wholesale foreign exchange market for operations payable in 48 hours. Banco de México informs the FIX from 12 o’clock onwards each banking day.

It is published in the Official Gazette (Diario Oficial de la Federación) one banking business day afterits determination date,

…. and is used to settle liabilities denominated in U.S. dollars payable in Mexico on the day after its publication in the Official Gazette (DOF). “

… That reality means that, (per the Banxico website), the Banxico published “official rates” are ALWAYS 1 business day LATE…

Why should you care?
Some Mexican vendors (unwisely) use the Banxico rate to determine their dailyselling price (in Pesos) of things like solar panels etc that use US-cost-based silicon elements. … Notice that the Mexican vendors do not realize that their Banxico choice it is based solely on YESTERDAY’s USD-Peso trades    …   That means if you can bet    today    on a horse race that happened yesterday.  … You simply look up today’s fluctuating moment-by-moment trading floor exchange rates on, or on Bloomberg TV or on MSNBC … and you know today’s real current rate ….  while the Mexican business is using yesterday’s Banxico rate results.


4. There are a 4’th category of exchange rates, based on the BIG BANK’s daily overall exchange rate decisions, made at MIDNIGHT of every night.

Visa Card and Master Card accept $10’s millions of dollars of ATM charges & credit card purchases every day … BUT… Visa & MasterCard do NOT process those transactions (exchanges) until MIDNIGHT that night … Every midnight, MasterCard & Visa look back at the previous day’s and Bloomberg reported floating-rate exchange floor trades … and THE BIG BANKS at midnight, set a single exchange rate for the PREVIOUS DAY’s transactions based on an average of the previous days floating-spot-rate exchanges.

This system CAN work very well, since your ~single~ little exchange transaction of buying something with a Credit Card,   or using an ATM, or “with my bank in the USA” … because your single little electronic transaction is bundled with $10’s of millions of other peoples electronic transactions … So you get lower overall fees due to using the bulk volume of the single MASSIVE midnight aggregated exchange-trades by Visa Card & Master every night.

But NOTICE that you can get hosed … sometimes … by using this ATM – BIG BANK mass exchange at midnight, especially  IF the rates are fluctuating rapidly that day  – and you made your transaction in the morning,   but if the market slides in the afternoon, you get stuck with a bad MIDNIGHT BIG BANK final daily exchange rate deal.


5.   The 5’th category of exchanges is by SPECIAL BUSINESSES who have either too many US Dollars … or too few MXN pesos … These businesses offer SPECIAL EXCHANGE RATES through little storefronts (special Casa’s de Cambio)  …   Because a Mexican business or industry may need to DUMP too many Pesos, and they want US Dollars, then that Mexican business will offer rates that are commonly up to a FULL 5% better than the Banxico rate … or as much as a full 5% better than the US BIG BANK (midnight) rates….

If you find that little SPECIAL exchange office is offering superb rates, you can GAIN an extra 3% to 5% on your exchange.

THIS IS one of the ways we (the authors of this article) regularly get an EXTRA $50 US dollars of gains … on a every $1,000 dollars we personally exchange.

THIS is the opportunity that travelers have, when they have a layover in the Mexico City … Benito Juarez airport Terminal 1.

The same opportunity exists in Gran Plaza, (Merida), for people with TOO MANY Mexican Pesos …  There’s a little special UNIQUE storefront Casa de Cambio in the front of the big Mega-Comercial grocery who SELLs US dollars at 5% better than other “sell” exchange rates. … People selling Pesos,  buying US dollars,  can save~gain a literal $50 US dollars on every $1000 dollar transaction.

…   If you doubt this … Go online … and type in

and NOTICE how much different this little SPECIAL Merida exchange office rates are from … the Big Bank rates, different from the Bloomberg-NY Times rates … and different from Mexican Banxico rates… Most recently,  “Efectivo Divisas” was selling US Dollars at just $18.75.  while the big banks were selling US Dollars at $19.57 …. a $44 dollar GAIN on every $1000 we sell.

Don’t most of us want … an extra $44 dollars in our wallet ??

and No …. Don’t do exchanges with money-launderers …

nor with sketchy-folks …

nor with guys you met on the internet who offer to come over to your house … 😉

If they’re a stranger,

offer to do the exchange only in a very public place  … even if they say “I’m from Texas …

6.   The 6’th kind of exchange rate is one you want to AVOID…
Individual home Banks up in the USA & Canada are free to sell MXN Pesos to their account holders at whatever rate they want to set.   Because individual branch banks do NOT have MXN Pesos sitting in the branch,  they have to make special extra efforts to get MXN pesos to sell to you … and the US & Canadian branch banks then CHARGE for that service by setting their own expensive one-time-exchange rates.

The typical airport Casa de Cambio outlets,  and the typical city-center Casas de Cambio similarly charge artificially high rates to unknowing tourists, who just want the convenience …  who pay an extra additional 3% for the convenience … Convenience that costs themselves a net total 10% LOSS on the exchange.

*    *    *    *    *   *    *   *
Now … do our gentle readers  ~now~ understand that THERE IS NO SINGLE WAY of determining “exchange rates”  … ??

but …   Yes, Virginia … There is a Santa Claus.

If you understand how these 6 different US Dollar – MXN Peso exchange rates are determined … then you too can easily walk away with an EXTRA 2% to 5% gains in your pocket … versus the naive

“I use an ATM, with my bank’s rate.” … and …   “My bank doesn’t charge me for exchanges.”

= = = = = = =
Yes, Virginia …. Intercam & Monex use one of these 5 main systems of determining exchange rates, but I’ve never used Intercam nor Monex, so I do not know their procedures.

…  Do any of our talented readers know what method Monex & Intercam use? …




Finally … Notice that all the first 5 “better” exchange rate methods apply to US DOLLAR – MXN Peso exchanges …  and then note that the special ways to save 3% to 5% on exchanges may not work with Loonies or Pound Stering … because most Mexican businesses & Mexican banks do not want either Loonies nor Pound Stering.  😦


*    *    *    *   *    *    *
If you still don’t understand how to use … to your advantage … the 5 different “better” ways of determining exchange rates .. BUY ME LUNCH … and I’ll answer your questions in person … and the $30 bucks you can save per exchange … for the rest of your life … pays for the lunch.

* * * *
*As always, the information offered above is for ONLY educational or humorous purposes.   It is NOT intended as either financial advice, nor is it life advice.   See a professional financial adviser or therapist for real financial or life advice.
* * * * * *
Feel free to copy while giving proper attribution: YucaLandia/Surviving Yucatan.
© Steven M. Fry

Read on, MacDuff.


8 Responses to Exchange Rates and Using Credit Cards Internationally

  1. Pingback: Issues with Using Credit Cards Internationally and Exchange Rate Information | Surviving Yucatan

  2. Eric Chaffee says:

    The last few times we visited here, we were paying 2% or more to card companies on international transactions. This year I found a deal from Capital One that apparently rebates all atm charges and international charges (although we have only just started using this card, so we will wait to confirm). We are using Capital One as an online bank, and paying our bills online, from Yucatan.


  3. Johan G Niel says:

    I have been waiting for this article to finish so I can link to it but I still get only the summary no matter which link I use???

  4. Kidd Karibe says:

    Not sure what genius came up with this dissertation of diarrhea ??

    • yucalandia says:

      Sure …

      Remember … book-burners … low-information … and other insecure folks

      … can only resort to ridicule.


      Have a great day,

    • yucalandia says:

      Hey “Kid”,
      Love your anonymity … sniping & hiding behind fake names …

      but regardless of you calling yourself “Karibe” … You’re clearly writing from Merida … using a Tel-cel connection … from area code 97203 …

      Should I continue with describing who you really are?

      … or … Can you stop hiding behind fake names
      … stop sniping …

      and choose to join civilized society?

      Have a dandy day,

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