Dynamic currency conversion is a scam. It’s something experienced travelers have known for years now, and it seems to be an unwritten rule among jet-setters that you should still pay in local currency whenever prompted. Paying for something overseas in your own local currency will result in unnecessary charges which can add up quite quickly and leave you significantly out of pocket when you land at base. Either way, there always seems to be a big bunch of travelers – especially younger ones – who always fall for this rather nasty little trick that’s used to charge travelers arbitrary amounts of money without Valid reason.
And that’s understandable. Not everyone is up to scratch when it comes to travel tips and ways to make your trip smoother (and cheaper). Plus, it’s pretty intuitive to want to pay in a familiar currency when you’ve had a few too many drinks at a beach bar in Bali and go pay the bill with your credit card. You know you’ve done it before – I sure have – and there’s no shame in that. It would, however, be a bit silly to choose to pay in local currency after reading this.
Would you like to pay in the local currency?
This question will appear every time you pay for something with your credit or debit card while abroad. Whether it’s a clothing store, a bar or a hotel restaurant, you always have the choice between paying in the local currency of the country or in your country of origin. The latter initiates a process called Dynamic Currency Conversion, leaving your funds to a third-party institution to process the card payment with the merchant. The third-party institution is different from your card issuer, which would be the one handling the normal exchange rate if you choose to pay in local currency.
This institution, without your knowledge, is able to set the exchange rate at will. And it’s often as exorbitant as it gets because it’s completely legal. This may mean that on top of your purchase you will be charged a rate of up to 8% typically, simply for choosing to pay in your local currency.
Let’s say you just paid for a $500 dinner with your credit card and you choose to pay in your own currency rather than 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 this can add up if you are unaware of such a costly mistake and you can see why it is worth shouting from the rooftops -“always pay in the local currency.”
And there may be even more additional costs
Not always, but sometimes these institutions are able to squeeze in additional conversion fees on top of the dynamic currency conversion rate and this is often split between the merchant and the third party institution. For this reason, merchants are encouraged to encourage tourists to pay in their own currency. This doesn’t happen as much now as more people are plugged into the game, but some merchants will even make the decision without contacting you.
How to spend smarter while traveling
The odds are stacked against you if you’re not more vigilant with your money when traveling. Merchants know how to piss you off and no matter how good the service is, chances are they don’t give a damn about you and your budget. Your only weapon here is awareness and having a real plan in place to properly manage your money abroad.
There are a few clever ways to play this. One would be to consider a travel money card where you can load a number of foreign currencies. This way, you won’t even have the option to pay in your local currency, as the funds would slide directly off the card with the standard conversion rate. Some may not know it, but make no mistake, travel cards can be worth it.
Another alternative to using credit and debit cards abroad is to simply pull out a big pile of cash the first day you arrive at your destination and try to live off of it. I do this all the time in Japan, but that’s because in the country cash is still king and I have absolutely no security concerns there.
Of course, this only really works if you’re careful with your money. Of course, this opens up a whole lot 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 these two options is just to train your brain to always pay in local currency when using a debit card or a credit card. All in all, whipping out your credit card to treat yourself to a few indulgences when you’re abroad, like a bucket list restaurant or new topics, is always going to be the most convenient way. You simply pay for this convenience with vigilance.