Understanding Dynamic Currency Conversion

Information verified correct on September 29th, 2016
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Find out what dynamic currency conversion is and why you should never pay in Australian dollars when you use your credit card overseas.

If you’ve ever been overseas and tried to use your credit card for purchases, you’ve probably been asked whether you want to pay in Australian dollars or in the local currency. You might’ve been asked this even if you have a no foreign currency conversion credit card or a prepaid travel card.

This option is referred to as “dynamic currency conversion” and is offered by some overseas merchants. While it does mean you’ll know exactly how much money is charged to your account, it can cost twice as much as a standard overseas transaction. Here, we unpack exactly when you can expect to be charged a dynamic currency conversion fee and how you can avoid it.

What is a dynamic currency conversion?

Dynamic currency conversion allows you to pay in Australian dollars when you use your credit card to make purchases in another country. This option converts the local currency to Australian dollars at the point of sale. It is based on an arrangement between the merchant, your financial institution and a third party responsible for providing the dynamic currency conversion service.

If you choose to pay in Australian dollars, the Visa, MasterCard or American Express exchange rate is used to pay for the transaction. You’re then charged a fee on top of the exchange rate by a third party responsible for providing the dynamic currency conversion service. The fee is not disclosed at the time of the transaction and often works out to be double what you would have paid had you had opted to pay in the local currency.

For example, most credit cards charge between 2% and 3% of the total transaction value for overseas purchases. Dynamic currency conversion costs, on the other hand, are usually between 6% and 8% of the transaction. Meanwhile, if you use a no currency conversion fee credit card, you can avoid international transaction charges all together.

How to avoid dynamic currency conversion fee

If you’re asked whether you want to pay in Australian dollars or the local currency, always choose to pay in the local currency. Paying in the local currency is cheaper than using dynamic currency conversion. See how much you can save by reading about Jane and her experience with dynamic currency conversion in the example below.

Jane in London

Jane is in London on a holiday. When she pulls out her Australian credit card to buy some groceries the attendant asks her if she would like to pay in pounds or Australian dollars. Let’s have a look at the price difference if she chooses to pay in pounds or dollars.

If the dynamic currency conversion fee is 7% and the regular currency conversion fee is 3%, and the exchange rate is AUD$1.76 to £1 British pound, on a £100 purchase she would pay:

With currency conversion fee (3%)

With dynamic currency conversionAUD$188.51
Without dynamic currency conversionAUD$181.46

Without currency conversion fee (3%)

Using a no currency conversion fee credit card with dynamic currency conversionAUD$188.51
Using a no currency conversion fee credit card without dynamic currency conversionAUD$176.18

If she chose dynamic currency conversion, a third party company would handle the currency conversion and take an extra cut. The credit card issuer and Visa or MasterCard do not make any extra money from dynamic currency conversion.

How to avoid foreign currency exchange fees when travelling

Compare No Foreign Currency Exchange Fee Credit Cards

Rates last updated September 29th, 2016
Foreign Currency Conversion Fee (MC) Foreign Currency Conversion Fee (VISA) Overseas ATM Withdrawal Fee Annual fee
Bankwest Zero Platinum MasterCard
Complimentary travel insurance & 24/7 concierge service and $0 foreign transaction fees.
0% of transaction value $0 $0 p.a. Go to site More info
28 Degrees Platinum MasterCard
No foreign transaction fees on international purchases including international purchases online, together with a no annual fee.
0% of transaction value $0 $0 p.a. Go to site More info
ANZ Rewards Travel Adventures card
Pay no overseas transaction fee on purchases and receive complimentary domestic return flight and lounge passes each year you hold the card when you spend $500 on eligible purchases within the first three months.
0% of transaction value $225 p.a. Go to site More info
Coles Rewards Mastercard
Earn 2 flybuys point for every $1 spent and no foreign transaction fees for online purchases and overseas trips.
0% of transaction value $4 $89 p.a. Go to site More info

Although it’s nice to know how much you’ll be charged in Australian dollars, using dynamic currency conversion is really just throwing money away. Australian banks such as NAB even tell their customers to pay in the local currency instead of using dynamic currency conversion.

If currency exchange fees are something you want to avoid all together, compare prepaid travel cards and no currency conversion fee debit and credit cards. You can use these products with peace of mind knowing you’re not paying unnecessary currency conversion fees.

Compare travel money options so you can spend overseas for less

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Sally McMullen

Sally McMullen is a journalist at finder.com.au who is a credit cards and travel money expert by day and music maven by night.

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2 Responses to Understanding Dynamic Currency Conversion

  1. Default Gravatar
    John | January 25, 2016

    What are the Dynamic Currency Conversion Rates for the Naira today and last Monday?

    • Staff
      Jonathan | January 27, 2016

      Hi John, thanks for your inquiry!

      To allow us to assist you further could you please let us know which credit card network you are with (MasterCard, Visa, American Express etc)?

      Cheers,

      Jonathan

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Virgin Australia Velocity Flyer Card - Balance Transfer Offer
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11.99% p.a. $0 p.a. Go to site More info
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19.99% p.a. 0% p.a. for 15 months $149 p.a. Go to site More info

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