Should I pay in local currency or my home currency when I use my card abroad?


Have you been offered to choose to pay in your own currency or local currency when you are abroad? Have you ever doubted what is better? Should you keep it simple and pay in your own currency? While in an ideal world there shouldn’t be a difference between the two prices, turns out there actually is.

These questions came to my mind in many different occasions when I was paying at hotels and shops in countries where the currency barrier was as complex as understanding the local language. In many occasions I chose to pay in my own currency as I thought it would be easier to keep track of how much I was actually spending. The reality is that I did not know I was being taken advantage of by the system. Either the shop or the bank was making a profit out of my ignorance.

Conversion fee and DCC

This topic has been covered by Forbes and many other well-known financial institutions. What I learned is that there is something called Dynamic Currency Conversion. This is how it works:
When you choose to pay in your home currency, the shop would show your bill in your home currency, Dollars or Euros for example, but this conversion is made at a mediocre exchange rate, being beneficial only to the shop, not to you.
At the end of the transaction, you are being charged an additional 2% – 3% on the price you already agreed only for the sake of the service.
If you travel often and rely on your credit/debit card, this certainly adds up.  You end up paying extra for something just for the benefit of seeing it in your local currency on a paper. Think about it, you had already made your decision on purchasing the item or paying for the bill. There is no need to see it on your own currency on a paper, specially when most banks today will immediately send you a text with the details of your purchase, in your local currency.

Withdrawing money from an ATM while travelling

This is probably another common situation you have experienced or you have been forced to do when you needed some handy cash to buy small things on the street.
When you withdraw money for an ATM, your bank will charge you a processing fee that may be either a flat rate or a percentage of the amount you are taking out. This percentage can go all the way up to 3% of the amount. Also keep in mind that it will be considered a cash advance which will generate interest on your credit card from day one.

Play smart

If you are planning to do some street market shopping, let’s say in Bangkok for example, my advice here is to carry some pocket cash and use it . This pocket cash can be carry in any major currency that is easily exchange at a better rate on any currency exchange house, i.e. dollars, euros, pounds. If your home currency is not that common, i.e. dirhams, riyals, pesos; it is better not to exchange it abroad as the exchange rate in some countries is not going to be the best.

To sum up

Choosing to pay in your home currency will cost you more as a conversion fee or a poor exchange rate will be applied on the transaction. Always choose the local currency when the option is offered. Some shops will automatically put forwards the option of your home currency. In this case, always check your bill first before paying or entering your PIN, and ask to be charged in local currency. Happy smart spending!

Share your opinion

  1. Maybe getting a multi currency credit card could help a great deal, my bank offers one where you can be charged in 11 different major currencies.

  2. I don’t agree with the first point. I’m a regular traveler and have experimented in many different occasions and locations. Choosing my own US currency has always turned out to be cheaper vs. picking the local currency. AND you must use a card that does not charge a foreign transaction fees. Many banks offer such credit cards these days,

    1. If you have experimented in many different occasions and locations and it always works better for you to be charged in USD, I could only guess that your bank gives you a terrible exchange rate if you are charged in local currency. That should not be the norm. The alternative/strategy to be charged in your home currency was created not to help you but to get some extra bucks out of you. If that’s better for you, then again I guess your bank is actually screwing you even worse.

  3. Banks also charge a fee (% differ per bank/card type) for foreign currency transactions. There’s no winning here. Unless we use cash.