I generally avoid posts like this but when two members of my immediate family make the same mistake something must be done! Traveling abroad always confuses even the most regular traveler. Which debit card to use? Do people use traveler’s checks? Etc. But here’s one simple rule to at least avoid some of the sting of unnecessary fees: always pay in the local currency!
Reminder: I have no credit card affiliate links and get no compensation for any cards I mention here, I just genuinely like them.
Foreign Transaction Fees and how to avoid them
By now, most people know that credit cards charge foreign transaction fees. Most credit cards charge 3% on top of whatever you pay. So if you buy something that costs $100 USD after conversion it costs you $103.
In this day in age, you can mostly avoid foreign transaction fees when using credit cards abroad. In fact, while I poked around for this post I realized that one of the cards I recommended in my travel credit cards for beginners post have no foreign transaction fee and no annual fee. So if you like to keep things simple, go ahead and sign up for Discover It Miles. Another alternative, especially attractive if you qualify for Bank of America preferred client: BofA Travel Rewards. I probably should have recommended that card too, come to think of it…
Dynamic Currency Conversion costs you a ton of money
While everyone knows to avoid foreign transaction fees when possible, the perils of dynamic currency conversion often get overlooked. Dynamic currency conversion happens when you get the choice to pay in the local currency or US dollars with your credit card.
ALWAYS PAY IN THE LOCAL CURRENCY!
Banks ostensibly offer dynamic currency conversion to make life easier for you. Pay in dollars and don’t worry about converting in your head! But what you miss in the fine print is the over 4% fee the bank charges you to do this. It’s so well hidden that I couldn’t find the rate for the Chase Sapphire Reserve during a quick search here from Hong Kong. But Hong Kong Disneyland stated the rate clear as day on their receipt.
There are two prices on the receipt: one in HKD and one in USD. At the bottom of the receipt it says the exchange rate (7.45 HKD: 1 USD) factors in the 4.2% charged by the merchant service provider (aka Chase). Google says the current rate should be 7.77 HKD: 1 USD.
I did the math for you, you indeed pay about 4% more if you pay the number they give you in US Dollars. But if you pay in Hong Kong Dollars you pay the correct amount according to the exchange rate. So you basically pay 4.2% to avoid having to do mental math. A terrible deal!
Train yourself to always pay in the local currency. If you have to confirm verbally, insist they let you pay in local currency. If using a machine, it’s usually the #1 button (you get to choose the option).
You might lose a tiny bit of money here and there with differences in exchange rates between banks and card issuers, but you’ll lose BIG if you fall victim to dynamic currency conversion. Don’t be like my family: always pay in the local currency!