Dynamic Currency Conversion And Why You Should Avoid It

By Saroni Chakravarti | September 21, 2019

Planning your first foreign trip? While you’re researching on places to visit, read up on dynamic currency conversion and why you should avoid it.

Dynamic Currency Conversion And Why You Should Avoid It

A lot goes into planning and gearing up for your first foreign trip – getting your passport and tickets in order, buying Travel Insurance and a travel card, making a list of emergency contact numbers, etc. If you’ve ticked the boxes against all these items – awesome job! You’re pretty much set to embark on your first foreign trip. However, besides reading up on and looking out for ways you may get ripped off abroad, you might also want to be wary of a perfectly legal way to lose money during your foreign travel – a dynamic currency conversion fee.

Merchants resort to this nefarious but also perfectly legal money-making scheme by pocketing a good percentage from all your foreign transactions under the guise of ‘dynamic currency conversion fees’. Let’s find out more about these charges.

What Is Dynamic Currency Conversion?

The principle behind dynamic currency conversion (DCC) is that when you make transactions abroad, the merchant will give you the option to make the transaction either in the local currency or your home currency. If you opt to pay in your home currency, the merchant will convert the purchase into the local currency on your behalf.

While this may seem really convenient at the time, especially since someone is offering to do the legwork of conversion for you, the exchange rate that merchants use is invariably terrible. In fact, there may even be a charge included in the fee that may not be disclosed to you upfront, for the ‘service’ they provide.

DCC is not just restricted to a few countries, it is prevalent anywhere you travel outside your country.

Additional Reading: Travelling Abroad? Check Out These Credit Cards!

Busting Myths About DCC:

One common misgiving about DCC is that it’s actually a smart manoeuvre around those pesky foreign transaction fees that you may incur on Credit Cards. After all, if you pay for a purchase in your home currency, then it isn’t exactly a foreign transaction, and you shouldn’t have to pay that 3% fee that Credit Card issuers usually charge on them, right? Wrong. If you read the fine print of Credit Cards closely, they spell out fees regarding ‘foreign transactions’. Notice, this doesn’t say anything about purchases in foreign currency; it simple says foreign transactions in general. So if you do accept a merchant’s offer to convert the transaction for you, you will still be subject to foreign transaction fees. In fact, the fees will even be higher because dynamic currency conversion would have increased the actual amount of purchase.

Additional Reading: Tips and Tricks For Handling Multiple Credit Cards

How To Avoid Paying DCC:

So whenever you’re travelling internationally, remember to look out for these traps and always opt to pay in the local currency. It may also be a good idea to have at least one Credit Card that doesn’t charge foreign transaction fees. There’s little sense in avoiding dynamic currency conversion fees if you have to pay fees just for using the card.

Another easy way around paying the DCC fee is to install a currency conversion app on your phone. This will help you quickly verify just what kind of a deal you’re getting when you’re making a purchase.

While most merchants will offer you the option to choose between either currency when you’re making a payment, there might also be situations when some merchants deliberately bill you in your home currency. However, some might even do so thinking that they are helping you. Either way, remember to comb through the bill carefully to quickly check all the items that you have been charged for and the currency in which you’re being billed.

Additional Reading: Tidy Your Wallet By Cleaning Out Your Credit Cards

Final Thoughts:

DCC fees are not just applicable to physical transactions, they apply to online purchases as well. For instance, when you’re booking hotels before your foreign trip, you might encounter merchants who have defaulted the transaction to dynamic currency conversion. Always remember to de-select this option and opt for your card issuer to convert the charge instead.

DCC might not be as bad as losing your valuable belongings overseas but it’s still an easy way for you to spend more money than you expect to during your foreign travels.

Looking for a Credit Card that is most suited for international travel? Click the link below to start exploring!

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