Should you use currency conversion?

The Checkout Conundrum: Why Choosing Local Currency Can Save You Money

We’ve all been there, the thrill of a new purchase overseas, the excitement of exploring a different culture. But lurking in the checkout process, often unseen and unnoticed, is a potential pitfall: currency conversion. Should you let the retailer convert the price to your home currency, or should you stick with the local currency? The answer, more often than not, is surprisingly straightforward: go local.

Forgetting currency conversion at checkout might seem like a small oversight, but it can actually be a silent money-saver. The truth is, letting the retailer or bank at the point of sale handle the conversion rarely works in your favor. This seemingly convenient service, often called Dynamic Currency Conversion (DCC), is usually offered with a hefty markup.

Why is this? Retailers and banks offering DCC essentially bake in a profit margin on top of the actual exchange rate. They’re providing a “service,” and that service comes with a cost. This cost can easily add several percentage points to your purchase, significantly impacting your travel budget. You might think you’re getting a clear picture of the final price in your home currency, but that clarity comes at a premium.

So, what’s the alternative? The key is to arm yourself with a credit card that doesn’t charge foreign transaction fees. Many credit cards nowadays offer this benefit, so a little research can go a long way. With such a card in your wallet, opting to pay in the local currency becomes the savvy choice.

Here’s why: when you pay in the local currency, your credit card company will handle the conversion. Credit card companies typically use much closer-to-interbank exchange rates than the rates offered by DCC. The interbank rate is the rate banks use when trading with each other, and it’s generally the most favorable rate available.

Think of it this way: you’re cutting out the middleman. Instead of relying on the retailer’s bank to convert the currency, you’re letting your own credit card company, with its often more competitive exchange rates, handle the transaction.

Beyond the better exchange rate, choosing the local currency also gives you more control over your financial transactions. You’ll see the charge in the local currency on your credit card statement, and you can easily verify the exchange rate used by your bank. This transparency can help you avoid unexpected costs and better manage your travel expenses.

In conclusion, while the convenience of seeing the price in your home currency at checkout may be tempting, opting for the local currency is usually the wisest choice. Paired with a credit card that doesn’t charge foreign transaction fees, you’ll consistently get the best exchange rates and minimize those unwelcome surprises on your credit card bill. So, next time you’re presented with the currency conversion option, remember: go local and keep more of your money where it belongs – in your pocket. Your travel budget (and your peace of mind) will thank you.