Problems with Cashing Foreign Checks

Every person who has ever tried to cash an out-of-country check soon discovers that it is not as straightforward as cashing a local check. In particular, foreign checks will usually be subject to higher bank fees, and will have a much greater delay in clearing. These two factors are related. The more quickly you want the money, the higher the fees a check-cashing institution will charge to protect itself. On the other hand, if you are willing to accept what can be as long as a month-long delay, the fee may be much lower.

In some regions, a maximum two-week delay in processing any check has been mandated by law. Various scam artists have learned to take advantage of the gap between when a check must be cashable and when the information finally comes through that the check was worthless, most notoriously in any of the various Nigerian schemes.

Thus banks and other check-cashing institutions have implemented fees and delays in cashing as a way of guaranteeing that the check is a valid one prior to the funds being made accessible. Different institutions will balance this two-factor equation differently. It is worthwhile to shop around to find an institution which best matches your own priorities. Some institutions, such as American Express and Thomas Cook, specialize in single-transaction foreign exchange, but you will be required to establish your identity with them each time.

Even travelers’ checks are not immune. While delay in cashing is uncommon with travelers’ checks, many international institutions which cash travelers’ checks charge up to a 10% fee for doing so. Some will require that any travelers’ check they cash be used for purchases in that store or hotel. For this reason, experienced travelers will always keep one or two days’ worth of their currency needs in cash.

One way to reduce delay and to protect yourself a little from currency exchange fluctuations is to maintain separate bank accounts in those foreign currencies with which you often deal. In most western countries, it is usually possible to obtain bank accounts where the funds can be kept in United States dollars, Canadian dollars, United Kingdom pounds, euros, and Swiss francs without a need for immediate conversion. This enables you to deposit the foreign check into the account matching its currency, and even to earn interest in that currency. Otherwise, you will be locked to whatever the institution currency exchange rate happens to be at the moment the money finally becomes accessible, which will always be less favorable than the official exchange rate.

One way around the foreign check delay is to have the funds wired between banks. Most major banks prefer this system, because it reduces their own risk. For most efficient and cheapest service, you will want to ensure that the two banks already have a partnership in place for such purposes. Every major bank will partner with two or three major banks in most countries of the world. Where such a partnership is in place, funds which can be accessed within a day or two can be wired at a fixed fee comparable to that of having bounced a check.

Paypal works on a similar structure. Unlike most banks, its fees are based on a percentage of the whole. Its exchange rates are also less favorable than the official exchange rate, although the user has the advantage of being able to choose when and how to exchange currencies. The major drawback of Paypal transactions is that Paypal still has no structure in place for sending funds to a bank account without converting them first to the official currency of the user’s country. This renders foreign currency bank accounts useless for Paypal purposes.

Although identity theft is more feared with purely Internet structures such as Paypal, the reality is that with technologies such as keyreaders, the risk is about the same as with any modern financial transaction. As with all transactions which require the combination of a card / user ID and a password, always keep these two pieces of identification separate.