What Is Dynamic Currency Conversion And How To Avoid Paying It – Forbes Advisor

Dynamic currency conversion allows consumers to use their home currency when transacting with retailers, restaurants and other services abroad. Customers will see an invoice with charges in their local currency, their home currency, and an offered exchange rate when they charge their credit card in their home currency. It might seem like a tempting proposition to know how much you’ll be charged without manually converting local currency, but you could end up paying more due to markups and hidden fees.

What is dynamic currency conversion?

Dynamic Currency Conversion (DCC), sometimes referred to as Cardholder Preferred Currency (CPC), allows customers to pay for a product or service abroad in their home currency instead of the local currency. This is a type of currency conversion fee, similar to other fees that credit cards or ATMs may charge for converting purchases or cash withdrawals abroad into your home currency.

Currency conversion fees are typically charged by the debit or credit card provider, such as Visa or Mastercard, and amount to around 1% of the transaction amount. DCC is usually set by a merchant’s service provider, which processes the exchange rate and any additional fees.

It may seem attractive when you are presented with a DCC opportunity in a foreign country as it is convenient and eliminates the extra step of converting the transaction amount from the local currency to your home currency. However, using DCC can result in a more expensive exchange than charging your credit card in your destination currency.

Should I pay with dynamic currency conversion?

Every time you buy something in a store or restaurant, you probably want to see the best deal possible. By avoiding paying DCC fees and paying in a local currency instead, you can do just that, saving money on all DCC-related fees.

You should always have a choice of currencies when making legitimate DCC transactions. An invoice should include the transaction amount in both your home and local currency, as well as the currency conversion rate that will be applied to your transaction if you choose to settle the purchase with DCC.

For example, if you are a US citizen traveling in Paris, you may get a tab with €30, $32 and an exchange rate of 1 Euro = $1.05315 (the current rate as of August 2022; updated EURO to USD ). . At first glance, the DCC may look good, but if you compare the DCC to the current market rate that your credit card provider would calculate in a few days, you’ll probably find that loading your card in euros is cheaper than using the DCC .

While DCC has its advantages, the disadvantages can quickly outweigh the advantages.

Benefits of dynamic currency conversion

Paying the DCC abroad has a number of advantages.

• You know what you are paying for up front. Instead of waiting to see the total cost in your home currency on a bank statement, you know how much a product or service will cost at the point of sale and don’t have to estimate what you’ll be billed after your issuer completes the transaction and reports them.
• It’s optional; Dealers need your approval. Shops, restaurants and other services are not allowed to conduct DCC transactions without consent. You can accept or reject DCC at any point of sale.
• Price comparison is easier. DCC could make shopping easier by allowing you to compare the prices of different products in your home currency without having to do the extra legwork of converting the costs yourself.
• The exchange rate is guaranteed at the time of purchase. If you accept DCC, the exchange rate offered that day is guaranteed at the time of purchase. If you decline DCC, your credit card currency conversion may take a few days later when the transaction is processed. If you choose to wait, the actual amount will depend on the market rate on that day.

Disadvantages of dynamic currency conversion

DCC cons may be enough to convince you to decline the option if you’re shopping, eating, or doing business in another country.

• Additional fees will most likely apply. A service provider commissioned by the merchant normally processes a DCC for a specific transaction. The provider may charge its own fee plus a surcharge on top of the transaction costs.
• Merchants are not always required to disclose additional fees. You may not know exactly how much more you will pay if you accept DCC unless you calculate the cost yourself by comparing the market rate to the exchange rate provided by the merchant.
• Your purchase could become more expensive. Because of the additional fees, the DCC exchange rate quoted on a transaction receipt or at an ATM is usually worse than the market rate, resulting in a more expensive purchase.
• You still have to pay transaction fees. If your credit or debit card charges a fee for foreign transactions, you will still have to pay that fee in addition to the fees associated with a DCC. This fee applies even if your transaction is denominated in US dollars since you are still using the card abroad.

How to avoid paying dynamic currencies

Avoiding a DCC is easy – all you have to do is decline if given the option at a shop, restaurant or ATM abroad. By rejecting the DCC, you ensure that you are not paying more than you absolutely have to.

A DCC should always be an option. If you don’t have a choice, the merchant may not be following the rules set by the credit card processor and even the local government.

For example, when withdrawing money from an ATM, you should be able to accept or decline a conversion provided by a third party. Similar to a purchase, the ATM should display the requested withdrawal amount in local and home currency and the conversion rate that will be applied if the DCC is accepted. We recommend refusing this type of conversion at an ATM abroad. You should still be able to withdraw cash, but your bank will do the conversion at the current market rate. If you can’t withdraw cash without making a DCC transaction, find another ATM.

Other ways to save money while traveling include using a credit card that doesn’t charge fees for foreign transactions and using a currency converter app to quickly convert money before you buy.

bottom line

Knowing how much you’re paying at the point of sale in your home currency has its perks, but you often end up paying more than you need to due to poor exchange rates and unclear fees that often come with dynamic currency conversion. Instead, top up a credit card in the local currency and use credit cards with no foreign transaction fees to stay on budget when traveling. Use debit cards with no foreign transaction fees to withdraw cash as cash advances are inadvisable and expensive.

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