No one can dispute the fact that the Coronavirus has had a rapid and profound impact on the economies of countries across the globe.
Stock prices have fallen and the value of the U.S. dollar has risen sharply relative to the value of other currencies, especially against the Mexican peso.
On March 24th, the Mexican peso dropped to a historic low against the dollar: $25.17 MXN. For comparison purposes, the exchange rate on February 18th of this year was $18.55 MXN.
That probably doesn’t mean much to our readers outside of Mexico who are focused more these days on trying to find toilet paper — but it should mean a lot to American retirees living in Mexico on a fixed income originating from the U.S. (e.g. social security) because they suddenly have a lot more buying power.
When it comes to explaining exchange rates, I’ve found that the most effective way to do it –especially when speaking with someone unfamiliar with the topic — is through examples.
For the purposes of this section, I’ll be using the exchange rates and corresponding dates that I referenced in the previous section. The actual rates that you would receive in the “real world” will vary depending on the method you use to transfer the funds and/or make purchases. I’ll talk more about that in the next section.
A New Car
Let’s say you want to buy a brand new, fully-loaded Nissan Kicks in Mexico. The list price from Nissan Mexico is shown below.
On a side note, the prices of goods and services in Mexico are the total amount to be paid and already include all taxes, commissions and fees. I really like this about Mexico.
The price of that car in pesos did not change from February to March but the number of dollars it took to buy those pesos did.
February 18th ($18.55 MXN) $400,400 MXN = $21,584 USD
March 24th ($25.17 MXN) $400,400 MXN = $15,907 USD
That’s a pretty significant price difference. Now do you understand why exchange rates are important?
In areas of Mexico that cater to foreign real estate investors, it’s not uncommon to see prices listed in U.S. dollars. That won’t help you much when it comes to exchange rates, so let’s look at a property that’s listed in pesos.
This is an actual listing from the Riviera Maya. I redacted the contact details:
February 18th ($18.55 MXN) $2,990,000 MXN = $161,185 USD
March 24th ($25.17 MXN) $2,990,000 MXN = $118,792 USD
I could keep listing items ranging from flat screen televisions to bedroom sets, but I think you get the point. The more expensive the item, the more significant the savings.
Changing Your Dollars Into Pesos
The method that you choose to transfer your dollars into pesos can substantially impact the exchange rate you actually receive. That’s because financial institutions — especially banks — make money off of exchanging currency. Even if they claim there are no fees, the profit comes from giving the customer a lower exchange rate and pocketing the difference.
You didn’t really think your bank was exchanging your dollars for pesos out of the kindness of their heart, did you? Rest assured, they’re taking a cut of your money.
In fact, transferring money through a bank wire service often results in the fewest amount of pesos at the end when compared to third-party money transfer companies like Transferwise. Unfortunately when it comes to big ticket items like real estate, sometimes the bank transfer service is the only option.
I use Transferwise to move money from my U.S. bank account to my Mexican bank account via their app in response to changes in the exchange rate. It takes less than a minute to set up a transfer.
If you don’t have a foreign bank account to transfer funds into, you can set up an multi-currency account with Transferwise and store your money with them until you need it to buy, say — a new car in Mexico.
U.S. Credit Cards
Another great way to take advantage of good exchange rates is to make purchases using a U.S. credit cards that do not charge a foreign transaction fee. The exchange rates given by most cards are fairly close to the posted rates at the time.
Some new and used car dealerships will allow you to put the entire car on a credit card. Not only can you get a great deal on the exchange rate, you can earn cash back or points to use toward things like plane tickets.
One word of advice. If you are asked by a salesperson if you want to charge your card in pesos (the price shown) or in dollars, always choose pesos. If you say dollars, you’re agreeing to let the business handle the conversion for you instead of your credit card company and that convenience comes with a charge.
That practice is known as dynamic currency conversion (DCC) and I addressed it in an earlier article about foreign ATMs. You can read that one HERE.
Let’s Wrap This Up
As you can see, timing both bank transfers and major purchases to take advantage of fluctuations in the exchange rate can dramatically increase your buying power when living in Mexico. It’s all about learning how to live better on less.
On a related note, the value of the dollar against the peso dropped a bit since March 24th. My Transferwise app indicates that I can lock in a rate of $24.1080 MXN. That’s still an excellent rate.
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Notice: We’ve been using Transferwise for a long time now and we highly recommend them. One of our readers recently suggested that we become an affiliate advertiser for Transferwise since we were mentioning them so often anyway. We decided to give it a try. As a result, this article does contain some affiliate links that give us credit for referrals.