Pay in your Own currency? – The Travel Rip-off to Avoid

Whilst abroad or shopping on an international website, have you ever been baffled when faced with the option to pay in your home currency rather than the local currency? This is a service known as Dynamic Currency Conversion (DCC).

What is Dynamic Currency Conversion?

On the face of it, DCC is a simple and helpful service which enables you to see exactly how much you will be paying for goods or services in your home currency. This is reassuring as it removes the risk of you miscalculating on conversion rates and you end up fully aware of the price that you are paying for something, knowing that there won’t be any heart dropping surprises in your next credit card bill.

However, unbeknown to most people, using DCC comes at an additional cost and this can total anything between 2-12% more.

Currency Conversion Fee and Exchange Rates

It’s easy to think that because you are paying in your home currency, you are avoiding foreign transaction fees and high margins on exchange rates. Unfortunately, this isn’t the case.

When you select to pay in your home currency, the DCC service converts the local currency to your home currency using an exchange rate that has been determined by the merchant, or the financial institution that will process the transaction (not the card issuer).  What’s disconcerting is that at the point of sale, you have no visibility of what the fee or margin on the exchange rate is, just the overall cost. According to Payments Source.com, ‘some five-star Indian hotels add close to 9% to non-rupee transactions’.

On top of the marked up fees and exchange rates, your bank may also charge you a foreign transaction fee as it will still recognise the transaction as having originated from outside your home country.

A Brussels-based consumer-advocacy group ‘BEUC reported the cost of DCC transactions at ATMs in non-euro European Union countries ranged from 2.6% to 12% higher‘ than if they’d been executed in local currencies.

The key is to be able to make an informed choice at point of sale. For some people, the convenience of having the calculations done for them and overall costs confirmed at point of sale is a service worth paying for as it’s easier to manage the holiday budget this way.  But be wary, these are avoidable transaction costs which can add up quickly.

There are a multitude of foreign currency converter apps that are now available for your phone or watch and these can help you to quickly calculate what exchange rate you can expect to get whilst on the go. There are other ways that you can be smart with your money whilst on your travels particularly if you plan ahead.

Read our Top Five Travel Money options.

Disclaimer: Please note any provider recommendations, currency forecasts or any opinions of our authors or users should not be taken as a reference to buy or sell any financial product.