A or B, the answer is always local…
Credit cards have come a long, long way. The addictive pieces of plastic are easily the most lucrative way to earn points and miles and thanks to the complete disappearance of most foreign transaction fees and a variety of helpful consumer protections, they really should be the go to for all purchases abroad.
With all these positives, merchants have figured out a way to skim a little bit of extra money off of unwitting transactions, and to avoid falling prey, you need to stick to a simple script…
First, Why You Should Use A Credit Card Abroad
Carrying lots of cash is always a risk when traveling. Using a debit card offers no consumer protections or rebates.
Many credit cards however, offer protections and benefits in cases of faulty gear, stores going bust and all that stuff. That’s good. If your card doesn’t have foreign transaction fees, and you have the cash to pay the bill in full, you should always use a credit card abroad.
You earn points on all purchases, and points add up to travel, or future savings. It’s like a rebate on everything. If your card does charge foreign transaction fees, there are clever options like Curve, and others which can eliminate them.
The Sneaky Trick Merchants Pull
Sometimes they don’t even ask. Merchants love to pull a trick where they ask if you wish to pay in your currency back home, let’s say you live in the USA, it would be dollars – or if you want to pay in the local currency.
If you’re visiting London, they’d ask if you want to pay in dollars or pounds. The answer, wherever you are, no matter what, is you always to pay in the local currency. If you’re in the UK choose Pounds, Paris – Euros, Thailand – Baht. You get the gist.
A business practice known as dynamic currency conversion (DCC) means that you get a much better exchange rate and therefore pay less by paying in the local currency rather than whatever your currency is called at home.
Choose the other (wrong) option, and you’re unwittingly paying more. The larger the transaction, the more meaningful the savings can be, up to $100’s! If you’re away from home, always choose the currency of the place you’re away, traveling in for credit card transactions – as long as your card doesn’t charge foreign transaction fees.
The More You Know
With decent currency conversion rats just a Google search away, by searching for something like 50 GBP to USD, it’s always interesting to compare the grand totals you would’ve paid.
When checking out at a hotel, or somewhere where significant money is being spent, the difference charged can be absolutely staggering. Assuming your credit card doesn’t charge these foreign transaction fees, again, always pay in local currency.
The next step: figuring out which credit card maximizes your return via nice category bonuses, like 3x points for dining or 5x for hotels…
Glad you’re publicizing this as so many people don’t know anything about it or don’t realize the disadvantage to the consumer. I try and spread the word among family and friends who travel internationally.
It really ticks me off when the clerk doesn’t even ask, though sometimes it’s due to lack of training or language barrier. But still aggravating that the practice takes place to begin with.
Can you explain a little further why paying local is better? Your credit card’s bank is still going to convert it to USD or your currency when you see the bill, correct? So what’s the difference? Is the local bank or store going to give you much worse rate all the time, worse than your credit card’s bank? Thank you!
Most of the time in Peru and Colombia they don’t even ask. They just present me with the receipt the pops up in US dollars. I tell them that they have to void the transaction and do a new one in the local currency. Don’t sign the receipt because if you read the fine print below it says that I have been given a choice and I chose to pay in u.s. dollars. What a rip off.
Exactly. Up to us who are aware to spread the word. But people seem not to be bothered. £20 here or there l guess they think its part of the deal and carry on. But it does add up over a trip.
Yep, done that. I was always confused about this option and often chose US$. I know better now!
Thanks for highlighting this issue. DCC is something I detest. Some establishments are worse than others.
Recently, I have been presented the handset terminal and told “Just enter your pin”, “It’s a pre-auth only” and guess what, the pre-auth is in my local currency of GBP.
I learnt never to enter my pin if the display is blank. Another way to avoid DCC is use American express as they do not perform DCC. I tend to use Amex as a pre-auth in hotels and then use my FX Free UK cards when paying a bill, clearly stating I want to pay in local currency.
You have to watch hotels/shops like a hawk, they know they are selecting DCC but will often deny knowing what they have done. If you don’t like what you see, don’t sign, don’t put your pin into the terminal and then it becomes an issue for the establishment. They have to cancel or reverse it.
Your credit card company typically charges 3-5% more than the wholesale exchange rate when they convert it to your home currency.
(At least in the USA and UK, there are some providers who charge 0% to 0.5%)
So one would have thought that some enterprising bank would come in and offer to undercut the 3-5% by offering a conversion on the spot and taking say 2%.
But the merchant’s payment processors (i.e. the providers of the terminal) typically choose a rate of 7-8%, and wikipedia says sometimes 18%!
It’s a big profit opportunity for them and I believe they split it with the merchant (shop, hotel, restaurant etc) which is why:
a) Many terminals/ATMs make it difficult to choose Local Currency (one often has to choose correctly twice)
b) As Arnold says, many bars and restaurants tend to preselect “Your Home Currency”, particularly in countries where they still take your card away (I had exactly the same several times in Bangkok this year)
Did it once, then checked what the best option was and never used my own currency when abroad. it saves me a few percent at least. Not much when buying lunch, but when purchasing flights and Amtrak train trips like I did earlier this month, that’s a nice saving.
And closer to home, beware on Amazon. It’s improved slightly but Amazon by default will still automatically convert at their rate to the home currency of the card. You have to watch carefully to refuse this and tell Amazon to bill at the Amazon country’s local rate. Amazon, given their dominance, should not be doing this effective DCC as its default option.
Do merchants ever just default to pay in ‘cards home’ currency, or do they have to ask you? I ask because most of the time no one asks.
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