Should You Pay in Local or Home Currency When Traveling Abroad?

Traveling internationally has become much simpler over the last few decades. In many countries, it’s no longer necessary to carry cash or use traveler’s checks. Instead, you can charge just about everything to a credit card or debit card.

Yet when paying at a hotel, shop, or restaurant, you’re likely to encounter a choice: Should you pay in the local currency or in your home currency? Of course, if your preference is to pay in cash – or if it’s necessary to do so – it’s a moot point. With cash, there are no additional fees at the point of sale, though you may have paid a fee at the ATM or currency exchange booth.

Paying with a card is different. Presented with the local versus home currency option, the decision you make can lead to significantly different costs. With a credit card that has no foreign transaction fees, you can usually save money by selecting the local currency option.

The best credit cards for international transactions are designed to help travelers navigate the sometimes-tricky waters of foreign currency conversion, and these cards are accepted at a large scale internationally. Credit cards convert these international transactions at the current exchange rate, typically based on a globally recognized floating rate.¹ So, whether you’re savoring paella at a restaurant in Spain or buying a wool blanket at a shop in New Zealand, you’re paying the exchange rate at that moment.

Nevertheless, several factors can lead to different outcomes and costs. One of the most important issues is the type of credit card you use. If you use a card that charges foreign transaction fees, you might expect to pay about 3% of each transaction in fees, but that number can vary according to the card or card issuer. Depending on how much you spend over the course of a journey, such fees can take a considerable bite out of your travel budget. So, it’s wise to select a travel credit card that doesn’t tack on foreign transaction fees.

Second, it’s critical to be aware of “currency conversion fees” or “dynamic currency conversion” (DCC), which gives travelers the option to convert the purchase price into their home currency. However, these conveniences come with fees, and those fees aren’t always easy to spot; they’re often stealthily built into the transaction. For example, if you choose to pay for items in your home currency, you may be subject to a secondary fee imposed by the merchant’s credit card processor.

  
In practical terms, you will almost always pay more to use DCCs, and in some cases you might pay as much as double the basic currency exchange fee for a foreign transaction. Because the fee is hidden within the overall price, it’s often unclear what exchange rate is being used for the conversion.

The consequence? Say you’re paying $1,000 for a four-night hotel stay and you decide to pay in your home currency. You could easily wind up forking over $60 in unnecessary fees (about 6%). Add that to airline, rental car, restaurant, and shopping expenses over the course of a trip, and you could unknowingly spend hundreds or even thousands of additional dollars without even realizing it.

Why would anyone choose to use dynamic currency conversion? Simply put, it is a value-added service. The ability to view transactions in your country’s currency is typically easier to understand. What’s more, you view the converted price at the exact moment you make the purchase.

DCCs also deliver locked-in prices. As a result, it might make sense in situations where currency fluctuations are extreme or when complete price transparency is required, such as for business expense reporting purposes.

However, most of the time there are other less costly ways to negotiate foreign currency conversions when traveling. One of the simplest methods is to use a currency converter app on your smartphone – or look up the exchange rate – and determine the real cost using the calculator on your phone. This also makes it possible to view any potential added fees that have been inserted into a transaction, especially if it’s a DCC transaction.

Keep in mind that the best credit cards for international travel don’t impose foreign transaction fees. If you use one of these cards and avoid DCCs by selecting the local currency payment option, you will usually come out ahead.