Always choose to pay in the local currency when using a credit or debit card overseas, or you’ll pay the price.
Unsuspecting holidaymakers are being gouged every time they use their credit or debit card overseas, and it’s all because of scheme known as Dynamic Currency Conversion.
If you travel frequently, you’re probably familiar with this nasty little trap every time you use an ATM or go to pay your restaurant, hotel or shopping bill with a Mastercard, Visa or Amex.
You’ll be offered the choice of paying in either the currency of the country you are visiting, or in your home currency. Choose the wrong option and it can be very costly indeed.
Australians, for instance, who press the “Pay in AUD” button when travelling abroad, are ripping themselves off and they probably don’t realise it.
The same goes for a Brit who chooses to pay in GBP, or an American who choose USD, when they are in a foreign country.
What Is Dynamic Currency Conversion?
Dynamic Currency Conversion is a service that gives you the choice of paying in your home currency or the currency of the country you are visiting when you pay an overseas merchant for goods or services.
The main benefit to you is that rather than having to estimate how many Aussie dollars (or British pounds or US dollars) you’re actually spending based on the foreign currency price, you’ll know exactly how much you’re paying.
So it reduces the risk of making a mistake in estimating the conversion rate and paying more than you thought you would.
It’s counterintuitive though, because many people panic when presented with a choice of which button to press, as the waiter or salesperson hovers, and they default to paying in their home currency.
The banks clearly appreciate this logic, and they profit nicely from it.
Hit the wrong button and that designer suit suddenly might cost you a lot more than you bargained for.
Banks earn money by exploiting the spread, or the difference, between where a foreign exchange trader will buy and sell currency.
Your credit card may also include a fee for overseas transactions, and the merchant you’re doing business with is taking a little extra off the top by converting your money into your home currency for your convenience.
So you will pay your foreign exchange fee no matter which option you choose. But if you choose to pay in your own currency, you will be slugged with another fee of 5 per cent or more for dynamic currency conversion.
In fact, research by FairFX, a pre-paid currency card provider in the UK, found the average dynamic conversion fee was about 7.7 per cent, but could be as high as 10 per cent.
So, hit the wrong button and that designer suit or flashy pair of trainers suddenly might cost you a lot more than you bargained for.
How You Can Avoid Being Fleeced
- Always pay in the currency of the country you are visiting when paying with a credit or debit card.
- You have the right to choose what exchange rate and fees you are willing to pay. Don’t let the merchant decide for you.
- If you’re billed in your home currency against your wishes, write ‘DCC rejected’ on the receipt and insist on being charged in local currency.
- Mastercard and most other card providers insists customers are told in advance that they have the right to choose the currency in which the transaction will be completed.