Credit Card Tip : Local vs Home Currency

    Should you be paying your next international bill in the local or your home currency?

    You get the check sitting in the cafe across the Eiffel Tower in Paris and you put your credit card to pay for it when the server asks if you’d like to pay the check in Euros or Dollars. Its very common and happens all the time – its something called DCC or Dynamic Currency Conversion but there are a few things to know about this DCC “service” that is being offered to you.

    1. DCC is considered a service so theres a charge for it and the merchant charges you 3-7% to convert from Euros to Dollars. This can add up quickly over your trip.
    2. This DCC fee is in addition to any foreign transaction fees that you may be charged for as well if the credit card you used does not waive these fees for you – many like the Chase Sapphire Reserve, Sapphire Preferred, AMEX Platinum and Citi Prestige do not charge these fees.
    3. The DCC is charged to you by the merchant whereas the foreign transaction fee is charged to you by the credit card company.
    4. The merchant usually doesn’t mention to you that paying in your local currency is a bad bet for you because it is a good bet for them.
    5. When the merchant converts the local currency to your home currency, they generally don’t use the best exchange rate either so you’re also losing money there as well

    So what does all of this mean to you? Well, first, you should use a credit card that doesn’t charge you foreign transaction fees. These fees can add up – on a recent trip to Asia, the fees would have totaled over $35 on a low-cost vacation. Additionally, always pay in the local currency and avoid the additional fee by the merchant even if they insist for you to pay in your home curency. Here is what the math breaks down to :

    Local Currency Transaction : 100 Euros
    Foreign Transaction Fee : 3 Euros
    DCC Fee : 3 Euros (It can be as high as 7 Euros)
    Exchange Rate Loss : Varies

    You are essentially loosing 6% which can be easily saved for future travels (and this doesn’t include the cost of a bad exchange rate when the merchant does convert from the local currency to your home currency). On a $2,000 expense, this amounts to $120 (at 6% which can be higher) and isn’t a great use of money. Next time you pull out the credit card when traveling internationally, be sure to keep these fees in mind but more importantly, paying in the local currency will help you avoid the DCC fee right away.



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