Why you should always be paying with local currency of the country you're travelling in

Try and avoid paying DCC

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Dynamic Currency Conversion (DCC) has actually been around for more than 25 years, but it’s only recently that the practice became more widespread.  The DCC charge kicks in whenever you opt for your home currency instead of the local currency for an international transaction. The DCC service is normally provided by a company that acts as a go-between of the merchant and your credit card issuer. They can charge up to  3% or more of the purchase price to convert to your home currency.  The simplest way to avoid paying DCC is by saying no to your home currency, and selecting local currency.

Know your card’s FCC

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When you choose the local currency, you’re still not quite off the hook.  Your credit card issuer will charge a foreign currency conversion (FCC) rate when they bill you in your home currency. This is true not only when you pay overseas, but also when you shop online at overseas stores.  Credit card issuers are mandated to disclose their FCC, sometimes called foreign currency transaction rate, so it’s easy to find out yours with a quick search online.  You could be paying between 2.75% to 3.5% on FCC or FCT.

Now, just imagine if you opted to pay in the home currency.  First you will be charged a DCC and then your credit card will apply FCC.  In between the two, the exchange rate that will be applied is most likely to be on the high side of terrible too.

No such thing as friendly exchange rate

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Some consumers try and game the system by checking if the conversion rate is better as they transact.  Remember the D in DCC?  That means the currency conversion rate is dynamic and it changes by the minute making it difficult to track what deal you are getting.  Plus merchants deal with different companies that apply different foreign exchange rates so don’t expect this to be a daily rate, even an hourly rate.  And say you did get a reasonably fair rate – remember there is still about 3% DCC that will be slapped on the total bill. 

Don’t be too quick to sign the charge slip

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While some merchants give you a choice, be careful not to sign the charge slip when they don’t ask.  That’s because many shoppers or diners prefer to pay in their familiar currency so the sales person or waitstaff will just assume you want to pay in your home currency and make the choice for you. One more thing to note: some merchants make additional income from incentives whenever you use DCC that’s why they sometimes push it. 

You chose local currency, but was charged in home currency anyway!

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If you wanted to pay in the local currency but was charged in home currency instead, do not wait to sort this out after your trip.  Because you are not disputing the transaction, just the currency conversion, it will mean a tricky process where your credit card company will have to connect with the store’s bank overseas and initiate a chargeback.  Instead, here’s what you should do: tell the store to void the transaction, and then charge it again this time in the local currency.  If it’s a sizable purchase, your wallet will be better with skipping DCC and enjoying a better exchange rate.

If you haven’t gotten around to it, why not take time to read your credit card's terms and conditions.  Being familiar with all that fine print may give you sizable savings, maybe even enough to fund your next adventure.