To pay or not to pay in local currency? The pitfalls of Dynamic Currency Conversion



Shopping is high on the list of our favourite things to do when we are holidaying overseas, after all that guilty feeling that comes over us at the checkout in Perth seems to back off and let us eat far too into our savings in a foreign land. But when you approach the checkout with your credit card and the cashier asks you if you want to pay in the local currency or Australian Dollars, what do you do?

Well while it sounds like a convenient and money saving option, what you are really doing is putting the currency conversion in the hands of the store that you are buying your goods from. By doing this, you are accepting their currency exchange rate instead of your banks; and what looks like a standard currency conversion on your statement can really be costing you more than you may have imagined. Let’s face it, the store you are buying your goods from isn’t out to do you any favours. It’s safe to assume that every service you are provided is creating a profit for the retail store, and fair enough of course. There is no way to work out an exact and accurate comparison, as exchange rates update constantly throughout the day and the rate you receive from your bank is the rate at the time of your transaction; but generally speaking, you will find that putting the conversion in the hands of the retail store means you are paying an extra party for your currency conversion.

Opting to pay in the local currency of the country you are in

Let’s say you are in London and you are purchasing a t-shirt for 40 Pounds. If you choose to pay for the t-shirt in the local Pound currency, your credit card will complete the currency conversion from Australian Dollars to Pounds, at an exchange rate decided by your bank at the time of your transaction. This exchange rate is generally fair although different banks add an extra currency conversion fee that hovers around 3-4%, and this totals around $6 Aussie Dollars for a $150 purchase. It is really worth checking in with your bank to find out what fees you will be charged to make purchases overseas, as some banks are very competitive and some will take you to the cleaners. Read more about credit card fees before you speak with your bank.

Opting to pay in Australian Dollars

If you choose to pay in Australian Dollars, instead of getting the exchange rate set by your bank, you will receive an exchange rate set by the store (or EFTPOS terminal provider) that you are buying the t-shirt from and this exchange rate is set by them. As we've mentioned, there is no way to do an exact comparison as rates change constantly - but there is no certainty that the exchange rate you are receiving is competitive and there has been evidence of large markups. The real benefit that this provides is that you are able to see immediately how much you are paying in your home currency (Australian Dollars), however this can come at a cost if the exchange rate you receive from the store is poor – and includes a hidden service fee.

The choice is yours. Don’t be taken advantage of!

If the store you are buying your goods from has the option for Dynamic Currency Conversion, be careful that they do not make the decision for you. The store cashier must ask you if you would like to pay in the local currency or your home currency, before processing your transaction. One of our team members came across this first hand at Dubai Airport, buying a cup of coffee in between flights on the way to Dublin. After they had handed over their card and entered the PIN, the cashier advised that she had processed the transaction in her local currency, without having given our team member the opportunity to consent to the conversion. Whilst it was only a cup of coffee and at worst case scenario we are talking cents difference on a transaction of this size, it really opened our eyes as to how many stores were processing transactions this way without notifying the customer. You are entitled to tell an overseas store that offers dynamic currency conversion EFTPOS upfront that you wish to pay in their currency, so you can avoid any confusion after the purchase has been made.

Other options to cut down fees and know exactly what exchange rate you are getting

With the increasing popularity of travel cards, you now have the option to lock in an exchange rate before you head overseas so you know exactly what exchange rate you are receiving and don’t need to worry about exchange rate fluctuations or uncertainty at the checkout when you are overseas. Pre-organising foreign currency on a card before you travel means you also have the luxury of doing some shopping around to get the biggest bang for your buck. At Exchange Now we offer the Mastercard Platinum Multi-currency Cash Passport Card as it is one of few cards available that charges no currency conversion fees and no in-store purchase fees. Fees aside, it gives you an option that's not linked to your personal bank account for maximum security overseas. Read more about the travel card or get in touch with a travel money specialist to make sure your travel money goes further.


  • Conditions

This article is not considered to be personal advice, please consider your own circumstances before making a decision on how you pay for your goods and services overseas. Have any travel money questions that you would like answered by a specialist? Visit the Team in-store and they'll be glad to assist you.