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Dynamic currency conversion: Paying in your home currency is ripoff for international travelers

This point of sale system in Australia showed me how bad of a deal dynamic currency conversion is. Most don’t.

If you’re traveling abroad and a merchant offers to process your credit card charge in U.S. dollars (or your home currency) you’re being offered a service called Dynamic Currency Conversion.

Dynamic Currency Conversion (or DCC) seems like a good deal—knowing exactly how much you’ll be charged in your home currency is comforting, but the service is almost always a backdoor way to charge you an additional fee. As a rule, you should always decline dynamic currency conversion and process credit card charges in the local currency. DCC usually includes a hefty markup and it won’t help you avoid a foreign transaction fee.

Here’s what you need to know about dynamic currency conversion.

What is dynamic currency conversion?

Dynamic currency conversion allows you to pay in either local currency or in your home currency when using a credit card abroad. For credit card users from the U.S. traveling abroad, this means an option to process a charge in U.S. dollars.

A merchant can offer dynamic currency conversion when you pay for a purchase at a point of sale. Some banks also offer DCC when you take cash out of an ATM.

When you use DCC, the merchant sets the exchange rate. Sometimes you will see the exchange rate they use. Often it will be hidden. But rest assured that it always includes a hefty markup. If you opt to pay in U.S. dollars, chances are you are paying a premium of 5-7% for the privilege.

Should I pay in local currency or U.S. dollars?

Using dynamic currency conversion and paying in U.S. dollars is almost always a bad deal. You’re accepting a hefty surcharge in exchange for certainty in exchange rate.

If you choose to process a credit card charge in local currency, the exchange rate you receive will be close to the inter-bank exchange rate. Some processors use the rate on the date you swipe your card for the conversion. Others use the date your transaction is settled. In either case, the amount you end up paying in your home currency will vary slightly. While dynamic currency conversion give you certainty about which exchange rate will be used, a 5-7% markup is a hefty premium to pay.

Some blogs incorrectly state that Visa and Mastercard both charge a 1% foreign currency conversion fee. They suggest that DCC is a way to get around this fee. This information is outdated and incorrect. Both Visa and Mastercard allow you to see what rates they use to convert foreign transactions on their website.

Is there ever an advantage to Dynamic currency conversion?

The short answer? Almost never.

In my view, the only possible upside to dynamic currency conversion is that it lets you lock in an exchange rate at the point of purchase. This probably isn’t much of an advantage in most countries, and there are few countries where the exchange rate fluctuates so widely that it’s worth paying a 5%+ premium on your credit card transaction.

I’ve also seen people argue that dynamic currency conversion can help consumers understand how much something costs because you don’t need to do the math on exchange rates with DCC. However, you don’t need to pay a large dynamic currency conversion fee to get the information—you’ll usually be able to see the charge amount in U.S. dollars on a payment terminal before you accept the transaction. Use the information to make your buying decision, but process the charge in local currency to avoid the fee.

Can I avoid a foreign transaction fee by paying in U.S. dollars?

If your credit card issuer charges a foreign transaction fee, you won’t be able to avoid this fee by paying in U.S. dollars. Foreign transaction fees apply even if you are charged in U.S. dollars in a foreign country. A better option would be to always travel with a credit card that charges no foreign transaction fee.

Bottom line

If you are on a trip abroad and asked if you want to pay in U.S. dollars or local currency, don’t be fooled. Processing your credit card charge in local currency is almost always cheaper.

About the author

  • Aaron Hurd

    Aaron Hurd is a credit card, travel rewards, and loyalty program expert. Over the past 15 years, he has authored over a thousand expert contributions published by leading outlets including WSJ, TIME, Newsweek, Forbes, NerdWallet, The Points Guy, Bankrate, CNET, and many others. He has also served in consulting roles for many of these same outlets, designing content strategy, hiring teams of teams of editors and contributors, developing thought-leadership pieces, and ghost-editing for senior editors. Aaron is well-known in the miles and points community and regularly presents about travel rewards at conferences like the Chicago Seminars and Minnebar. Aaron has enjoyed the game of optimizing credit card rewards since getting his first credit card shortly after he turned 18. He started learning about credit cards and travel rewards from the (now defunct) FatWallet Finance forums and FlyerTalk. He holds more than 40 open credit cards and has first-hand experience with almost every major credit card product.

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