Sunday, September 13, 2009

Florence Savings Bank Wins Again

I didn't realize how much I take money for granted until coming here to Australia. A lot of economic concepts like exchange rates affecting imports and exports are suddenly very real; while we're here, we're importing Australian stuff and experiences into ourselves, and paying for it with US dollars.

I performed a little experiment the other day to get a handle on another economic concept that's affecting me personally: transaction costs. Every time I move money from the US to Australia transaction fees are tacked on, and it's not easy to figure out who's charging what. Sure, your credit card company will tell you about any fixed fees, but how do you know you're getting a good exchange rate?

So I stood at an ATM machine and withdrew $150 Australian dollars from my Florence Savings Bank checking account and got another $150AUD using my SchwabOne visa card. Then I went home and calculated how much it would've cost me to move money from my US PayPal account to my Australian PayPal account (yeah, they have PayPal and Eby here down under), and checked my statements to see how much that $150AUD cost me in US dollars. Results:

$150AUD cost me $123.23USD via Florence Savings
$150AUD cost me $125.29USD via Schwab
$150AUD would cost $129.61USD via PayPal

So, my little local bank wins!

I got the Schwab visa card just to come to Australia, because it has no foreign currency cash advance fee (most credit cards do).

I was surprised PayPal was the most expensive option; their transaction fee is low ($1.50AUD), but their exchange rate isn't very good (or at least wasn't very good on the day I did the experiment).

Now, if only the exchange rate would start heading in the right direction...


jpo said...

Interesting. So obviously, transaction size plays a major role here, since different institutions will have different tradeoffs on fixed costs vs. variable costs - kind of like paying points on your mortgage to get a lower interest rate. But still interesting to see how this impacts real-world transaction costs.

Gavin Andresen said...

Actually, I don't think transaction size matters in this case-- neither FSB nor Schwab are charging me a per-transaction fee (I'm sure they're making a little bit of money by giving me a slightly worse interest rate on the transaction).

Larry Kelley said...

You just need to drink some of that Aussie beer and then you don't give a damn about the exchange rate.

Anonymous said...

Let's talk about what really matters: are you gettin your butt back here in time for TM?

I loved your perspective on the Lincoln Avenue angst on Larry's blog: i.e. BFD.