Dynamic Currency Conversion is a scam. That’s something experienced travellers have known for years now, and it seems to be an unwritten rule amongst jet setters that you should always pay in local currency whenever prompted. Paying for something abroad in your own local currency will incur unnecessary fees that can add up quite fast and leave you substantially out of pocket when you land at home base. Regardless, there still seems to be a hefty chuck of travellers – especially younger ones – that still fall for this rather nasty little trick that is used to charge travellers arbitrary amounts of money for no good reason.
And that’s understandable. Not everyone is up to scratch when it comes to travel hacks and ways to make your trip run smoother (and less expensive). Plus, it’s rather intuitive to want to pay in a currency that’s familiar to you when you’ve had a few too many drinks at a beach bar in Bali and go to use your credit card to settle the bill. You know you’ve done it before – I surely have – and there’s no shame in it. It would, however, be a bit stupid to opt to pay in local currency after you read this.
Would you like to pay in the local currency?
This question will pop up every time you go to pay for something with your credit card or debit card while abroad. Whether it’s a clothing store, a bar or a hotel restaurant, you’ve always got the choice between paying in the country’s local currency or your home country. The latter starts a process called Dynamic Currency Conversion, leaving your funds with a third-party institution to process the card payment with the merchant. The third-party institution is different to your card issuer, who would be the ones handling the normal exchange rate if you opt to pay in local currency.
That institution, unbeknownst to you, is able to set the exchange rate at whatever it likes. And it’s often as exorbitant as possible because it’s completely legal. This can mean, on top of your purchase, you’ll be charged a rate that can typically reach up to 8%, just for choosing to pay in your local currency.
Let’s say you’ve just gone to pay for a $500 dinner with your credit card and you opt to pay in your own currency as opposed to in the local currency. You could be charged something like $40 just for pressing that button on the machine. If you didn’t, you wouldn’t. Now consider how quickly that can add up if you’re not aware of such a costly mistake and you can see why it’s worth shouting from the rooftops – “always pay in the local currency.”
And there can be even more fees on top of that
Not always, but sometimes these institutions are able to sneak in an extra conversion fee on top of the Dynamic Currency Conversion rate and this is often split between the merchant and the third-party institution. For this reason, there is an incentive for merchants to actually encourage tourists to pay in their own currency. It doesn’t happen as much now, because more people are hip to the game, but some merchants will even make the decision without checking in with you.
How to spend smarter while you’re travelling
The odds are stacked against you if you aren’t more vigilant about your money while travelling. Merchants know how to screw you over and no matter how good the service is, chances are they give less than a damn about you and your budget. You’re only weapon here is awareness and having an actual plan in place to properly manage your money overseas.
There are a few smart ways to play this. One would be to consider a travel money card where you can load a certain number of foreign currencies. That way you won’t even be presented with the option to pay in your home currency since the funds would slide right off the card with the standard conversion rate. Some may overlook it but make no mistake that travel money cards can be worth it.
Another alternative to using credit cards and debit cards while overseas is just to pull out a big stack of cash on the first day you get to your destination and try to live off that. I do that all the time in Japan, but that’s because in the country cash is still very much king and I have absolutely no security concerns over there.
Of course, that only really works if you’re careful with your money. Of course, that opens up a bunch of other considerations, like how much cash are you going to have on you at all times and how much will be left in your bags or in your hotel safe.
And then the alternative to both of those options is just to train your brain to always pay in local currency when using a debit card or credit card. By and large, whipping out your credit card to treat yourself to some indulgences when you’re overseas, like a bucket list restaurant or some new threads, is always going to be the most convenient way. You simply pay for that convenience with vigilance.
