Whether you’re buying a meal in a Spanish tapas bar or paying for a bus tour in the US, you may be asked if you want to pay in pounds sterling (GBP) or the local currency.
While it might be tempting to settle for the amount you’re offered in GBP, in most cases it will cost you more.
What is dynamic currency conversion?
Dynamic currency conversion (DCC) is the conversion of the transaction at the point of sale. So, basically it occurs if you choose to pay in GBP rather than the local currency.
Paying in GBP
Some holidaymakers opt to pay in their home currency because it’s more familiar and they know exactly how much they’ll be charged in GBP.
But if you choose to make foreign payments in GBP, the merchant is allowed to set its own exchange rate to convert the amount you’re spending into GBP. They may also add extra conversion fees on top of this.
If DCC is applied, you'll typically be charged around 6 per cent on each transaction. But it can often be more than this.1
Some retailers are given an incentive to use DCC to earn extra cash. This may be through a favourable exchange rate, or additional conversion fees.
Paying in local currency
Research shows that in most cases you can save by opting to spend in the local currency. For example, choosing euros in Spain or dollars in the US.
When you choose to pay in the currency or region of the country you’re visiting, the exchange rate will be set by Visa or Mastercard. Your bank may also charge a fee to carry out the transaction.
The rate used by your card provider when paying in local currency will in most cases be lower than that of the merchant, or foreign bank, when paying in GBP.
Some retailers overseas might automatically assume you want to pay in GBP unless you say otherwise, so always double check the amount before paying.