WHAT IS DYNAMIC CURRENCY CONVERSION?
Dynamic currency conversion describes the process by which credit or debit card holders, when making a payment abroad, have the cost of a transaction converted to their home currency at the point of sale.
This neatly links in to another blog I wrote about whether you should pay in your home currency or the local currency when you are abroad.
The most diligent of individuals can get caught out. I was, although the exchange rate was ok.
I would have still preferred to pay in the local currency, and I was presented with an invoice that led me to believe I would.
HOW DYNAMIC CURRENCY CONVERSION WORKS
You may be given the opportunity to pay in the local currency or GBP sterling. You will usually be given a worse exchange rate in favour of the retailer if you pay in sterling.
Retailers often ask nicely in a way that infers they are doing you a favour by giving you the choice to pay in your home currency.
IS DYNAMIC CURRENCY CONVERSION BETTER?
Not as a rule. You may end up paying more for your purchase. It is always best to pay in the local currency.
HOW DO YOU AVOID DYNAMIC CURRENCY CONVERSION?
Choose the local currency at the point of payment.
Always be on your guard and look out for Dynamic Currency Conversion. Hotels, restaurants and bars will often ask if you would like to pay in your home currency first.
Ask for a corrected bill if you spot that Dynamic Currency Conversion has been applied without your consent.
Know the currency conversion rate of the country you are visiting.
WHAT ARE THE BENEFITS?
There are no benefits for you, although retailers will receive increased revenue on each transaction amount. This is cited as 1% of each transaction amount according to www.retailmerchantservices.co.uk which will be credited towards card processing fees.
It is free and easy to set up with automatic processing.
Best rate guarantee for retailers (not for you).
MY TOP TIPS
Never buy currency from the airport
Compare foreign exchange rates across all providers. Supermarkets often offer preferential rates for loyalty card holders. Ask nicely if they can offer you a better rate for large amounts. If you don’t ask, you don’t get.
Order currency online
You are likely to get a better currency rate online. Supermarkets offer a ‘click and collect’ option with better exchange rates online with a loyalty card.
Cash
Cash is king. Don’t rely on cards alone. Some taxis only take cash, meaning you risk high charges for withdrawing from an ATM.
In some countries, such as Argentina, it’s difficult to get money out of ATMs without a local bank account.
Many popular destinations, particularly in Spain, insist on cash only because of high bank charges.
If you have to use a cash machine abroad, find one attached to a bank. Standalone machines often charge extra withdrawal fees.
Fees
Watch out for non-sterling transaction fees (foreign transaction fees), cash withdrawal fees and credit card interest.
Foreign transaction fees for every transaction are often set at 2.99%.
Cash withdrawals on credit cards usually incur interest fees immediately.
Never pay in GBP (pounds) when abroad
Always choose the local currency. Always insist at the point of payment that you want to pay in the local currency to get the best exchange rate given by your card provider. This is known as the market rate.
Always choose local currency for cash withdrawals
You will get the best exchange rate by doing so.
Find a credit card that charges no foreign exchange or cash withdrawal fees and gives you the perfect market rate
Halifax offers this on their Clarity credit card which advertises the following features;
- No fee to use anywhere worldwide (interest charges apply)
- No cash withdrawal fee (interest charges apply and some ATM providers may charge a fee)
- No annual fee
- S75 Consumer Credit Act 1974 cover for purchases over £100 – this holds the credit card provider jointly liable in the event of any disputes
Interest charges may apply from the point of any cash withdrawals. The main selling points on this card is that they offer no fee to use anywhere worldwide for purchases and no annual fee.
Have you been caught out by Dynamic Currency Conversion? What options do you prefer using to avoid the various traps and scams when you travel abroad?
