Should You Pay in Local Currency or Your Home Currency Abroad?

Traveling abroad is full of choices: where to eat, what to see, and even how to pay. One decision you might not see coming is whether to pay in your home currency or the local currency when using your credit card. This option, known as dynamic currency conversion (DCC), might seem convenient, but it can cost you more than you think.

Let’s look at what DCC is, how it works, and what you should do to avoid unnecessary fees.

What Is Dynamic Currency Conversion?

Dynamic currency conversion is a service offered by some merchants and ATMs that lets you pay in your home currency instead of the local one. For example, if you’re visiting France from the U.S., the shopkeeper might ask, “Would you like to pay in dollars instead of euros?”

Here’s how it works:

• The transaction is converted from the local currency to your home currency on the spot.
• This is done using the merchant’s exchange rate—not your credit card’s rate.
• You see the amount in your familiar currency, which can make budgeting easier.

Sounds convenient, right? Well, not so fast.

The Hidden Cost of Convenience: DCC Fees

While it might feel reassuring to see the price in your home currency, DCC usually comes with high fees. The average fee for dynamic currency conversion is 7.6%, and that doesn’t even include the foreign transaction fee associated with your card! Meanwhile, if you pay in the local currency, your foreign transaction fee is likely to be around 1.5% to 3% (if your card charges for that at all).

Why is Dynamic Currency Conversion so Expensive?

DCC merchants are separate from your credit card provider, and they can set their own exchange rates—which are often much less favorable than the rates used by credit card companies like Visa or Mastercard. On top of that, the convenience fee for converting the currency is added to the total.

Pros of Dynamic Currency Conversion

DCC isn’t all bad. Here are the potential benefits:

1. Immediate cost transparency: You see exactly how much the transaction costs in your home currency, which is helpful for budgeting.
2. Simplifies record-keeping: If you’re meticulous about matching receipts to your bank statements, seeing charges in your own currency can be convenient.

Cons of Dynamic Currency Conversion

Unfortunately, the downsides outweigh the benefits for most travelers:

1. Higher costs: As mentioned, the exchange rates and fees associated with DCC are almost always worse than paying in the local currency.
2. Tricky upselling: Merchants or ATM operators might push DCC as the “better” option, even though it costs you more. It’s pushed as the convenient option because you don’t have to do extra math, and if you’re trying to pay quickly and avoid slowing down a line, you’re more likely to go with what the merchant says is easier.
3. Lack of transparency: While you see the total displayed in your currency, you often don’t realize how much extra you’re paying compared to letting your credit card handle the conversion.

What’s the Best Option for Travelers?

When given the choice, always choose to pay in the local currency. Here’s why:

• Credit card companies typically offer better exchange rates than merchants.
• Even if your card has a foreign transaction fee (usually 1%—3%), it’s still much cheaper than the fees from DCC.
• Many credit cards for travelers waive foreign transaction fees altogether, making the local currency the clear winner.

Tips to Avoid DCC and Save Money

1. Be proactive: When paying, explicitly say, “I want to pay in the local currency.” This avoids any misunderstandings.
2. Double-check receipts: Before signing, ensure the receipt shows the charge in the local currency.
3. Use a travel-friendly credit card: Choose one with no foreign transaction fees, so you don’t get hit with extra charges either way.
4. Watch out at ATMs: ATMs may also offer DCC—always opt for transactions in the local currency to avoid inflated rates.
5. Stay Firm: Merchants might push DCC as “better for you.” Politely decline and insist on paying in the local currency.

Dynamic currency conversion looks good in the moment but usually isn’t worth the cost. Paying in the local currency is almost always the smarter choice, saving you from unnecessary fees and inflated exchange rates.

With a little preparation, you can confidently navigate these payment choices and keep more money for what really matters: making memories on your trip!

Featured image by John McArthur on Unsplash