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

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

Million Mile SecretsReader Request:   Why You Should Always Pay for Foreign Purchases in the Local Currency & Not in US DollarsMillion Mile Secrets Team

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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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I travel extensively for work and pleasure and have seen this scam going on for a long time. It is not restricted to Europe but happens all over the world. I have seen mark up as high as 8% in some places (an extra $88 on an $1100 bill – Ouch!)

I have a no-foreign-exchange-fee card and always insist on paying in the local currency. Occasionally I come across places which have trouble with meeting my requirement as their equipment defaults to the visitor’s currency charge. There are a FEW places in the world where big hotels and the like levy all their charges in USD so if you are using a US credit card there is no upcharge but there may be if you are trying to pay with a Euro-based card.

Is using ATM’s with a debit card to get local currency where your bank has an agreement not to charge fees with a local bank and pay all your purchases with cash!

i googled this issue & this website is the only thing i found addressing this.

i emailed visa explorer card several times & they said they have no advice for me- i asked which should i choose – korean won or us $. this screen comes up often.

i finally just compared a charge on my statement to what the store said they would charge & i see the markup is over 6%.

i don’t blame the store- they’re just trying to take advantage of the situation.

i blame visa explorer card for having clueless staff/ not educating their call center employees.

they really should give their card holders a heads up.

I had two transaction where the receipt offered HKD instead of USD. Only one merchant charged me in HKD even though I selected HKD. I also had another transaction in Shanghai where the merchant cannot guarantee me the charge is in USD instead of RMB and I end up cancelling the charge.

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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