May 31st, 2012
10:32 AM GMT
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(CNN) – Have you noticed the new trend when using debit and credit cards overseas?

We are now frequently being asked if we want to be charged in the local - or destination - currency or if we want to pay in my home currency instead.

Since the bill will eventually be converted to our home currency. I started to wonder the point of this. I knew there had to be a catch to it somewhere, but I couldn't quite work out where!

The tool being used is called Dynamic Currency Conversion and it allows an immediate translation into the final charge you will face in your own familiar currency. It will even print you a receipt with these details.

So why wouldn't everyone do this?

You've guessed it: The exchange rate you get with the converter is not the same as the one you would get should the charge go through the banking system to your home bank.

It may well have been set by the merchant, who now has the ability to change the rate, daily, hourly or whenever they want.

Even worse, the banks involved will probably be charging you a higher commission for the privilege of knowing how much you are paying, which may well be shared with merchant.

So what are the advantages? I know the final amount and I have a receipt detailing this which I can use for my expenses, already in my home currency.

But, since expenses software will usually do the exchange rate calculation for you, or I can submit my credit card bill to show the charge, this seems a fleeting benefit.

I put the two systems to the test recently. I made two withdrawals of CFH50 [$52.30] in Zurich. I chose one to be charged in local Swiss francs and the other in British pounds.

Two days later I compared both charges as they hit my account. In pounds, the conversion was £34.96, nine pence more expensive than taking out the local currency.

For nervous or inexperienced travellers there may be a comfort in having the certainty of knowledge. But I think it is a false security. If they knew they were paying more or getting less, I am pretty sure even the most anxious traveller would decide to keep their more of their own money for themselves.

Dynamic Currency Conversion seems to be just another way to charge us more  for the same service. For me, from now on....the rule will be always pay in the local currency.



soundoff (8 Responses)
  1. David

    Richard, where's the podcast? I live in China, the land of no CNN, and I haven't had any new Quest Means Business podcast episodes in a month. It's killing me. Please help a guy out and upload some more podcasts to itunes.

    June 2, 2012 at 3:29 am |
  2. an.ha

    Thank you for this info – I always wondered what the difference is.

    June 2, 2012 at 9:09 am |
  3. Anonymous

    If the Diamond Jubilee for Queen Elizabeth is a prelude to what we can expect for the London Olympics, I CAN NOT WAIT to watch!

    For a woman with so much power, prestige, royal heritage & legacy, wealth beyond imagination, I admire and respect her for one and one reason above all...
    That she brought up a GREAT legacy of the 21st century generation of royals to be defined by their humility, honesty, integrity and great character as exemplified by Prince Harry and Prince William...the future of England is indeed in good hands!
    Long Live the Queen and Long Live the Royal Family!

    June 4, 2012 at 11:02 pm |
  4. Anon

    I've often wondered about how this stacks up as well. My U.S. card charges a transaction fee of 1% of the USD amount for doing the currency conversion. I figured the difference in the exchange rate between the bank and merchant would be pretty close to that, but based on your numbers (about a quarter of a percentage point difference), it sounds like it's a much better deal to let the merchant do the conversion than pay the transaction fee. Obviously, all merchants may not be the same.

    June 5, 2012 at 6:01 pm |
  5. Intrepid

    The crooks in banks with merchants always gain a temp edge on the consumer.

    June 15, 2012 at 12:44 am |
  6. Anonymous

    This is technically a Part Deux and NOT a new post, so I didn't technically BREAK my promise, OK?
    That said, I would like to add this last advice...
    There is NOTHING pleasant or good short or long term about going into "insolvency" or "bankruptcy"...YOU THINK that having your own ability to print your way out of this mess is the way? Before you even GET to that luxury and the costs involved in such an overhaul, beware the VULTURES what will descend upon your islands like locusts ready to pay you pennies on the dollar for EVERYTHING and ANYTHING of value...And then after they are done FEASTING on whatever of value you may have left and only a carcass of your nation still intact, the aftermath of this FIRE SALE will be more unrest, more violence, more riots...you can see the picture, can't you? WAKE UP and OPEN YOUR EYES!

    June 15, 2012 at 7:39 pm |
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    July 26, 2012 at 1:51 pm |
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    September 20, 2012 at 10:09 am |

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