In order to serve you better: Charging your credit card in your home currency

Dynamic currency conversion is a service provided by merchants when processing credit cards payable in a foreign currency. Say, for example, you present a credit card issued by a United States bank to a hotel in Ireland, where the Euro is the local currency. In order to serve you better, the hotel will convert the fee from Euros into dollars.

What they don't tell you is they will use a horrible exchange rate for the conversion.

Comments (17)
  1. AC says:

    Yeah, please don't do that.

    My CC company converts the fee for me (obviously, they have to bill me somehow) and use the correct exchange rate.

  2. Owen Rudge says:

    A few years ago I went to Barcelona equipped with my new "no foreign transaction fees" credit card that would give pretty close to the official MasterCard exchange rate without any 3% surcharges, etc. Checked out from the hotel and just shoved the receipt in my bag, as we had to get to the airport. When I got home, I noticed that I'd been charged in GBP instead of EUR, at a much worse exchange rate than the official rate. E-mailed the hotel and requested they refund the difference; to their credit, they did. It's annoying that I wasn't offered the choice at the time though.

  3. Raphael says:

    This is what Yelp has a one-star rating for, isn't it?

  4. Lukas says:

    This doesn't have to be a bad thing. When I was paying with my debit card in Switzerland, the card terminal allowed me to choose between CHF and Euro, showing me the amount in both currencies and the exchange rate used. By checking the current exchange rate and exchange fees beforehand, it's easily possible to save money.

  5. Yuri Khan says:

    If you let the merchant do the conversion, you agree to their *current* conversion rate and it’s fixed.

    On the other hand, if you say, “No, let my card issuer handle the conversion”, then you agree to the conversion rate of your card issuer *at an indeterminate date/time in the future* when your transaction clears.

    Comparing the current conversion rates of the merchant and your card issuer may or may not be a good indicator of which rate is going to be more favorable for you.

    A proper implementation of the stated goal “In order to serve you [the customer] better” would have the merchant to quote the price in both currencies and let the card issuer decide upon the currency on customer’s behalf.

  6. Dave says:

    As a general rule of thumb, the CC vendors will give better conversion rates than any other options for conversion, so it's always best to be billed in the native currency.  The exception is what Yuri Khan has pointed out, that you'll be billed at the rate that applies when the card is charged, so you're exposed to exchange rate fluctuations.

    Does anyone know how Amazon's current auto-conversion rate compares to the MC/Visa rates?  I checked a while back and they gave you a worse rate, but they're a case where you often do get quite a delay between purchase and charging.

  7. James Sutherland says:

    It isn't so clear cut – some card providers use lousy rates and/or slap on hefty surcharges, certainly in the UK: up to $2.25, plus 2.75% over and above the actual transaction rate! For a small transaction, even if the merchant's conversion rate is actually designed to rip you off, you'd still be better off that way. Conversely, some of the better cards just charge you the bare transaction value as converted. I went and got one of those cards for online purchases, since enough of those are in dollars to make it worthwhile for me. (Actually, first I got a pre-paid $-only card, then later got a "no-load" card which converts as needed.)

    @Dave: Are you in the US? Do card providers there not apply any surcharges in addition to the wholesale (VISA/MasterCard) rate they get charged for it?

    I sometimes remember to check and compare, often noticing a few % difference between my cards and the current Paypal conversion rate. (My current $ card is precharged in chunks of GBP100 or so, then used over a month or two in smaller chunks; I get email notifications when the rate is particularly favourable for a day or two.)

  8. Sam says:

    @James Sutherland: Certain US cards have "no foreign transaction fees". These cards almost always have an annual fee of around $100. The issuing bank has to absorb the 1% fee that Visa or MasterCard charges as well as the loss of markup revenue and that fee pays for it. They also are typically travel oriented cards so they give out miles, which are cheaper for the bank to acquire than 1% cash back.

    I completely agree with your statement that it isn't clear cut. While the premise of the article is that a margin on currency conversion is a ripoff, Visa instead distributes the fees (some with the merchant, some with the issuer, who then plays an annual fee/rewards/interest rate game) so that the fee are opaque to the consumer.

  9. Dave says:

    @James Sutherland: Outside the US, but I'm paying with a card with a relatively high annual fee because that includes free travel insurance, which would otherwise cost more than the card fee does.  The rule of thumb from consumer groups here is that CC-based exchange rates are the best option for foreign exchange compared to the other options.

  10. not important says:

    I have an AmEx card with no annual fee. In my last trip to Canada I found out that the equivalent FX rate I paid with AmEx was better than exchanging USD at the local bank (Bank of Montreal). Equivalent FX rate includes the transaction fee I paid to AmEx – which AmEx displays separately on each transaction. I did not try the FX rate when withdrawing money (which would test the FX rate for my bank) because my bank (Chase) charges $5.00 for each nonChase ATM withdrawal.

  11. DaveL says:

    Money saving advice from Raymond now :)

    Is there a US equivalent to the excellent UK site?

  12. Anonymous Coward says:


    Yelp's one-star rating is for companies that don't pay Yelp's protection money.

  13. cheong00 says:

    And some banks like the Bank of China offers dual currency credit cards where all transaction made in HKD and CNY will be charged on account of corresponding currency, and let you decide whether to use bank offered exchange rate or use your CNY savings account to pay the bills later.

    Don't know if foreigners can apply for such card as well, but if they could and they're frequent flyer to China, with fixed exchange rate between HKD and USD, it could be a sensible choice to have one.

  14. AlexShalimov says:

    Paypal does the same thing. And they hid this setting so well that I have to google it every time I update CC info. Here it is:

    My Account -> Profile -> My Money -> My preapproved payments -> Update -> See Available Funding Sources (or Set Available Funding Sources) -> Conversion Options (for card you'd like to change this option)-> Bill me in the currency listed on the seller's invoice -> Submit

    Very obvious, isn't it?

  15. Andreas says:

    This is my #1 pet peeve when traveling (since my CC does it for free), some clerks even choose for me (always my own currency), I've never been able to deduce if they do it to be "helpful" or whether they are told to do so because their business gets a kickback from it?

  16. Hillarious says:

    Americans complaining of being ripped off by Europeans… This is a new one for me. Usually it's the other way around.

    [Not Europeans, but the DCC operators. So you're still being ripped off by a financial institution. It's just a different one. -Raymond]
  17. boogaloo says:

    "It isn't so clear cut – some card providers use lousy rates and/or slap on hefty surcharges, certainly in the UK: up to $2.25, plus 2.75% over and above the actual transaction rate! For a small transaction, even if the merchant's conversion rate is actually designed to rip you off, you'd still be better off that way"

    @James Sutherland Even when your currency is converted, it's still a foreign transaction and can have further fees applied by your credit card company. It's generally better to select a card with no/low foreign fees and a good currency exchange rate and pay in the merchants currency. If your home currency is collapsing enough to beat the DCC fees then you have bigger issues to worry about.

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