May 31st, 2012
10:32 AM GMT
(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.
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