Scam alert: Dynamic Currency Conversion. It’s the newest twist on foreign transaction fees, and the newest way way to rip you off when you travel. If an overseas trip on your summer getaway horizon it’s worth knowing, or being reminded of, the best ways to avoid, or at least minimize, foreign transaction fees when you pay by credit card.
Add-on fees are universally despised by travelers. Those include credit card foreign transaction fees the fees airlines charge for everything from checked baggage to choosing a seat, and hotel resort fees even if you never use the pool, gym or business center.
Dynamic Currency Conversion
Always pay in the local currency, with whatever credit card you are using.
Just say no if the seller offers you the “convenience” of paying in U. S. dollars.
On the surface, it makes sense, since paying in U.S. dollars with a credit card issued by a U. S bank would seem to be a local transaction. Not.
If your credit card charges a foreign transaction fee, it will be added to any foreign transaction, whether that’s in the currency of your home country or in the local currency. Plus, the exchange rate will be worse than you could get yourself, at an ATM machine, using that same credit card.
So you are paying more for the merchant to convert the foreign U.S. currency into the local currency, which could mean a mark-up of as much as 8%, depending on the currency conversion rate the merchant uses and the credit card you use.
Of course, you aren’t told that up front, and it’s too late to protest when you get your monthly credit card bill after you get back home.
The banks make money on dynamic currency conversion, the merchant makes money on dynamic currency conversion, but you lose money.
- Tip: The Points Guy advises that you look carefully at your bill, especially in restaurants, to make sure that shop owner or the waiter hasn’t automatically turned your purchase into a dynamic currency conversion charge, either on the false idea that it is “convenient”, or as a fraudulent way to make a couple of bucks.
If the merchant charges you in your home currency (e.g., US Dollars):
- Refuse to sign the receipt
- Have the merchant cancel the transaction, or tear it up to force a re-do
- Have the merchant re-do the transaction in the local currency.
Dynamic currency conversion mark-ups also affect foreign visitors to the U.S. who might want to pay in their home currency.
The best way to avoid credit card foreign transaction fees is to use a credit card that doesn’t charge them, which run the gamut from zero annual cost to hundreds of dollars.
- Tip: According to Airfarewatchdog, a card with a high annual fee isn’t necessarily a deal-breaker; sometimes the fees are more than offset by the perks bundled with a card. But it’s important to avoid paying more than a card is actually worth.
Tips on changing money at the airport
Another way to avoid foreign transaction fees is to avoid using the exchange kiosks or ATMs at the airport. That’s because companies like Travelex have signed deals with airports for exclusive service, and have to pay for that contract with hidden fees. It’s also why renting a vehicle at the airport costs more than renting it downtown, but that’s another story.
Even through the airport foreign exchange kiosks and ATMs they control often catch your attention and your wallet with billboards claiming “no fees,” they catch you by converting at retail exchange rates, which can gouge you by 10 percent or more, depending on the airport and the credit card you are using.
- Tip: Use only ATMs operated by major banks, even if you have to wait until you’re out of the airport. Or, do as I do – exchange just enough money at the airport to get you to your hotel, or through your first day’s needs. I’ve found better exchange rates at my hotel’s front desk than at an airport, too.
Add a currency conversion app to your smartphone or tablet, so you have the best rates at your fingertip. That’s the only way to know how much more you are paying at the airport, or when you are shopping or dining. My go-to app, and website, is the XE Currency Converter, with live rates that fluctuate literally by the minute.
What’s your tip for avoiding or minimizing foreign transaction fees? Add a comment below.