Reader Request: Why You Should Always Pay for Foreign Purchases in the Local Currency & Not in US Dollars

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Million Mile Secrets reader Jonathan writes in:

One thing I can’t figure out – is it better to pay for things in local currency and let Visa/ MasterCard convert back to US [currency]?  All the places I go to buy something offer to convert to dollars.   I don’t pay a foreign transaction fee on my card. 

When Emily and I were in Paris, we were often asked if we wanted to pay our bill via credit card in euros or in US dollars.  For example, if we were at a cafe and spent 30 euros, we’d get the option of seeing the bill of 30 euros converted to US dollars.

We always paid our bill in euros because if we paid our bill in US dollars, we’d be charged a separate currency conversion fee, despite using the Chase British Airways card which had no foreign transaction fee!

We noticed that almost all of the shops and cafes were very eager to bill us in US dollars instead of in the local currency (euros).

The reason for that, I suspect, is the extra profit margin (3% upwards) for the merchant when you pay in your home currency (US dollars in our case) instead of in the local currency.

This 3%+ markup to see the foreign currency converted to your home currency is in addition to the ~3% foreign transaction fee if you have a US-issued credit card which charges a foreign transaction fee.

Dynamic Currency Conversion

Welcome to dynamic currency conversion where you pay extra for the convenience of seeing the local currency converted to your home currency!

The way it works is that Visa and MasterCard (but not American Express) allows their merchants to give foreign customers a choice of transaction currencies when they make a purchase.  Those choices are typically the local currency and the home currency.

If you choose anything other than local currency, you pay a premium in addition to the exchange rate included by Visa and MasterCard and the foreign transaction fee charged by the bank which issued your credit card.

Seeing a foreign transaction in your home currency is a benefit for many travelers who don’t like to do the math while shopping, but it will cost you 3% or more for the convenience.

My personal view is that dynamic currency conversion is a sneaky way to squeeze extra money out of a consumer especially when overseas merchants refuse to process a transaction in local currency.

Sure consumers like the convenience of seeing their foreign charges in the local currency, but I suspect that many wouldn’t know that they are paying extra for that convenience.

If the overseas merchant refuses to charge you in the local currency (which is against Visa and MasterCard rules), you can include a comment in the signature line that you do not agree to the charge because it is not in the local currency and dispute the transaction when you come home.

Bottom Line:  Always choose to view your purchases outside the US in the local currency when paying with a credit or debit card because you’ll pay 3% or higher for the convenience of viewing your bill in your home currency.

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32 Responses to Reader Request: Why You Should Always Pay for Foreign Purchases in the Local Currency & Not in US Dollars

  1. I don’t know how much truth there is to this in Asia anymore. I was in Taiwan recently and several places offered to charge me in either NTD or the equivalent USD. They were not pushy about it at all. Although I checked NTD, the local currency, every time. When I looked at my statement the charges posted for the exact same amount the receipt had offered me if I converted to USD at the register.

  2. Of course I believe what you’re saying and know in Europe they scam you for everything possible!

  3. I thought the term Dynamic Currency Conversion referred to the process when the merchant did not offer a choice but just ran all sales on US issued credits cards into dollars rather than local currency, forcing the customer into the (usually 3%) fee, plus the extra chage often built into the stated exchange rate.

    I never sign a charge slip that shows foreign currency. I make the merchant reverse the charge in dollars and re-run the charge in local currency. And I demand a copy of the reversed transaction in dollars. Often the merchant does this with no hassle. However, some merchants don’t know their processing equipment well and it turns into a huge hassle. In these cases, I stand firm-I will sign nothing with dollars on it. I had one case where the merchant took 20 minutes and still couldn’t reverse the inital charge. I view this as a good learning lesson for the merchant on why they shouldn’t pull this stunt.

  4. I think that was one of my biggest problems in Europe. At first I didn’t understand where this was coming from and thought it was a great convenience. Then I started to look at the bills which were charged an extra 2-3% and I realized that I was really being had here….. Then I noticed something even worse as the last poster put up, certain places were automatically charging me American Dollars, so often enough I would have to ask them to cancel my purchase and re-scan everything in Euros.

    This goes to a larger discussion. Service in Europe sucks, and the swindling goes much further than your taxi cab driver taking you around a couple extra blocks to get a higher fair.

  5. You are absolutely correct that one should always pay in local currency & never use the conversion.
    Recently I was in Locarno Switzerland using my visa card in a local restaurant which INSISTED that
    I pay in US Dollars….I argued & fought with them but they insisted that when they put the charge thru
    their approval system, it comes out in dollars. Eventually I let it go, but when I got back I called the
    bank who referred me to Visa….I reported all the details and as of yet 10 days (a bit early) have
    received no reply.

  6. Very useful info for my upcoming European trip. Thanks for sharing!

  7. holy shizzle, never knew about this. gonna have to remember this in the future! thank you!

  8. @Nathan – I believe that AMEX doesn’t charge extra for the conversion, but Visa and MasterCard do. Everyone was very polite in Paris about not charging in US dollars when I told them not to.

    @Sam – I believe you have to be given a choice of which currency to run the charges in, but in practice it may not happen.

    @DCGuy – It really stinks when the transaction is run in dollars without being told. But we’ve always had great experiences in Europe!

    @Joe Grella – I believe you have to send your bank a written note to preserve your billing rights under the fair credit act. Visa likely won’t be able to refund the increased charges.

    @Rilys @Danny – Glad it helped!

  9. Thanks for the heads up! My husband and I are doing our first churn and traveling to Europe next month. This advice (along with all your other fantastic tips) have helped us tremendously. Thank you!!!

  10. Excellent and informative. I had some similar and very frustrating interactions in Ireland over DCC. In my experience, large international hotels, restaurants on the tourist grid, rental car companies, etc. often had their machines automatically set to charge in USD with the markup. To save the hassle, I started telling people as I haded them my card to “please make the charge in EUROS”. Still a couple of places messed up. In one case, I ended up disputing the charge on my return and was refunded the difference. If I recall correctly, the receipts in Ireland actually disclosed that the markup was 3.5% – I know the thrifty rental car one did. Some places still insisted on printing out a quote, even if I’d already told them to charge in Euros.

    One catch to your general guideline of always paying in local currency…the rules may change in 3rd world countries. I have had several experiences in Central America surrounding this…and there, my approach is to generally pay in the currency quoted. Since they often prefer USD, often you will be quoted a price in USD. If you ask to pay in local currency, surprisingly they will often convert it to local currency (manually) from their base rate in USD at an unfavorable exchange rate – often 3-5% markup. This has NOTHING to do with DCC, however.

  11. I always pay in local currency. One of my colleagues went to a conference at the Park Hyatt in Canberra and he paid in USD and the conversion was 1.11 USD/AUD. My other colleagues who checked out on the same day and paid in AUD had it convert via the bank at 1.04. If that does not sound like much, it was an additional $15 per day on his stay and the markup was nearly 7%

  12. Back in 2004 or 2005, I was in Ireland and did a tour that cost a little over $100. The receipt was in USD. I asked them to redo it in Euros. It took a very LONG time and I kept the copies. It turned out that I got double bill in both dollars and euros. I put in a dispute and enclosed the whole paper trail. I requested that I will pay the bill in Euro (converted by my CU into USD) and refund the bill the vendor put in USD that was >5% more. :(

    I ended up getting the bill in USD refunded and paid the bill that was originally in Euros.

    Bottom line: It took alot of effort both at POS site and afterwards. Not sure it was worth my time in this instance but every other time, it took very little time to request the bill in the native currency of the country I am in.

  13. Scott Childers

    If i go to Paris, and order from a menu the prices are in Euros right. then the bill would be in Euros right? Are they just hearing you speak English and pegging people as suckers and producing a USD bill? How would a retailer or restaurant even know to do a USD bill, unless they hear you speak English with an American accent? what if i was a fluent french speaker, and carried on in french with my friend through the whole meal? Would I then have to fight with some restaurants to not charge me in US Dollars even when they had no idea I was American?

  14. Scott, I think they can tell when they run the card that it’s a US based card. Someone can confirm, but I believe that’s how they know they can charge in $US.

  15. The advice in this article is also valid when ordering stuff from abroad, e.g. on eBay. When you go through eBay checkout, PAYPAL will try the same scam and automatically “convert” your purchase into USD. However, there is an option to check out in the original currency. Naturally it’s in small print and easy to miss.

  16. Nice article. I can think of two types of exceptions I have encountered:
    1. In Turkey, many merchants maintain banks separate accounts in Euros, USD, and Lira. Charging in USD in these situations is actually the best deal, as there is no currency conversion cost at all.

    2. On tour boats (mainly small river boats) you are in a different country with a different currency almost daily. Those boats typically chose one currency, usually USD or Euros, for all shipboard purchases and send these two their main office for processing. Of course, never purchase local currency from these ships – just find the nearest ATM wen you get off, or use your credit card charging in local currency when you get off.

  17. @Scott Childers – The card is identified when it is swiped at the terminal, so no need to profile you.

    @ANC RED-EYE @Max @Gary Steiger – Thanks for the tips!

  18. I was just in Korea and used the Chase SP and selected USD for some transactions and the conversion did not include an additional fee. Maybe it’s a dependent on the merchant/location???

  19. I was NEVER asked this in Paris…of course we most always paid cash…so that probably accounts for it eh?

  20. Thanks for this post. I wasn’t aware of this issue. All of my international travel charges so far that I can recall have just automatically been in the local currency. Euros for Portugal, Austria, Germany, and Slovakia, and pounds for London and Canadian dollars for Canada. I guess I’ve just been lucky without realizing it.

  21. NorthToAlaska

    the first time i had the USD ripoff occur for me was in england at a best west hotel at dover. my initial thought was, “well that’s convenient”, then 2 minutes later i realized what just happened. after that i always tell the clerk to run the card in euros or ASD or NZD or whatever the local currency is. only had one time they failed to do that, small thing, lunch someplace for $15, wasn’t going to waste my time have them reverse a 50 cent charge. but other than that, no problems.

  22. Excellent reminder, Europe seems less exotic for North American travelers and easy to let guard down against schemes like this.

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  24. I experienced this first hand recently after dining in Taipei. The bill came to 4440 TWD and the receipt offered the option to pay in either TWD or USD. The charge in USD was $158, which was roughly 3.9% higher than the equivalent TWD > USD exchange rate at the time. The point is, the USD amount they quote you on the receipt is always a horrible exchange rate. In this instance it was something like 1USD = 28 TWD instead of the market rate of 1USD = 29.2 TWD.

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  30. Thank you so much for this information.
    My mom and I were just asking each other why they ask us how we want to pay because it is going to be the same price either way. When we ask the cashier’s what they difference is they say there is no difference it’s just how you pay. Well, obviously that is a lie because we are going to get the extra charge. Thanks again, we will no longer be telling them that we would like to pay in dollars, euros it is!

  31. I have the chase sapphire preferred card ( no foreign transaction fees) and was at a travel agency in Spain where they said paying in usd would be better for me. And the price was much much less in usd than the going rate. Then went to a restaurant who didn’t even let me pay in usd and clicked no when the screen popped up. Then when I inquired I was told that I’d be paying more by doing so even though my card didn’t have foreign transaction fees. So I called the chase number and was told that I wouldn’t be getting any other charges except the usd amount so the waiter was wrong.

  32. Linda, I also have the Chase Sapphire Preferred. The issue is not that the card issuer charges additional fees for choosing USD, it’s the merchant. The converted USD amount presented by the cashier is inclusive of the mark-up. A recent international transaction for which the option of having the actual amount converted to USD provided a receipt which says at the bottom:

    This service is offered by the merchant’s service provider, with FX rate at Visa rate plus four percent.

    That means opting to pay in USD means you’re paying 4% more than the actual bill. Some smaller merchants may offer a discount if the user wishes to pay in USD, but this isn’t going to happen at major hotels or retailers.

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