What Is Bad About Dynamic Currency Conversion?
Posted November 13th, 2009
and last modified December 15th, 2009A use-abroad credit card can be viewed as any credit card that can be used when travelling to a foreign country – so Visa and MasterCard basically – and one issue to be especially aware of when using your credit card abroad is Dynamic Currency Conversion (DCC).
Dynamic Currency Conversion happens when you are charged in your own home currency for a credit card purchase in a foreign currency. If that straight away appears confusing, then you are halfway to understanding how easily travellers can be coaxed into paying above the odds when using their credit card abroad. Knowing you don’t understand how something works is essential in getting to grips with the problem.
The trouble is that many people may never have heard of Dynamic Currency Conversion as it relates to use-abroad credit cards, so they will have no clue that they are being stung on their charges.
DCC operates throughout Europe and across America, and it is the practice of adding a local conversion charge – usually around 4%, but sometimes more – to purchases made on credit cards issued in another country, and also cash withdrawals on a credit card or debit card issued in a different country. The cheaper alternative is to pay in the foreign currency and then be charged by your credit card provider to convert the funds to your home currency, which will be at the lower rate of around 2% to 3%.
In short, this means that if you were to travel to France with your Australian use-abroad credit card and make a purchase in that country, the French retailer may decide to charge you in Australian dollars instead of euros. In this way, he takes an extra 4% on top of the purchase price. The good news is that this is entirely your decision, so you can make him void any such transaction and start it again in euros instead.
As mentioned, this is also an issue when withdrawing cash from a foreign ATM on a use-abroad credit card or debit card. You may see a screen before your cash is dispensed asking if you want to be billed in local currency or Australian dollars. Although you may be feeling homesick and a little over-patriotic at that moment, make sure you choose the local currency option.
It is actually quite easy to be cynical about the fact that this question is even being asked in the first place, as it basically translates as “do you want to pay more or less for this transaction?” This demonstrates that the ATM owner is playing on possible customer ignorance or confusion in the hope that they will plump for their home currency and open themselves up to a higher charge.
Use-abroad credit cards are an easy way of making sure you have back-up funding when travelling, and they are a great way to avoid carrying large amounts of cash with you, but you must be aware of the DCC trap if you are to keep your costs as low as possible.
Related posts:
- Comparison Of Travel Currency Conversion With Credit Cards
- How Do Foreign Service Fees Affect Use-Abroad Credit Cards?
- Guide To Travel Money & Currency Conversion – Save On Your Next Overseas Trip
- Where Can I Withdraw Cash Abroad?
- How To Use Credit Cards When Travelling Abroad
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