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.
So, which should you choose when using your card outside the UK?
Dynamic currency conversion
When you use your debit or credit card at a foreign retailer or to withdraw cash from an ATM abroad, you may be offered the option to pay in GBP rather than the local currency. This service is called dynamic currency conversion (DCC).
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. It 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 often 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 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 the 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.