Choosing between local currency or home currency when using your cards abroad

Jan 26, 2020

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If you’ve ever paid for something in person using a credit card or debit card while abroad, you may have been given the option of choosing to pay in the local currency or your own home currency. For example, if you take a GBP-issued card and pay for a meal charged in euro in Italy, you’ll be handed a payment machine and given the choice between paying in EUR or GBP.

You may also be given this option at a cash machine/ATM.  You may be encouraged by the machine to select home currency after seeing information like “Choosing home currency to lock in your rate now and avoid any currency fluctuations”.

Related: How to best use cash while travelling abroad

While it may be enticing and convenient to choose that home currency then and there, you should always choose local currency and not home currency. The reason for that is that where the merchant or cash machine operator calculates a conversion rate to give you a home currency figure then and there to select, they will give you an awful rate, far below market exchange rates.

Each time you use your credit card, the merchant hands over 2 - 4 percent of the transaction in fees. Image courtesy of Neustockimages via Getty Images.
(Photo courtesy of Neustockimages/Getty Images)

Why? Because they can pocket the difference. They can offer you any rate you want and if you accept it, they can process it at that rate and the saving they make against the market exchange rate is easy profit for them.

For example, if you were to make a purchase of 120 euro, you would expect this to cost you the equivalent of around £100. But I’ve seen foreign cash machines and in-store payment terminals offer to set the exchange rate at a rate around 1 GBP = 1 EUR, meaning your 120 euro purchase will cost you around £120.

This is an awful rate! Always select local currency. The rate will be significantly closer to the official market rate.

Related: 5 reasons I no longer carry cash on me in the U.K.

If a bankteller or shop owner or waiter tries to convince you to pay using your home currency do not agree — insist on local currency. If they make this selection for you and select home instead of local currency, I would hold your ground and insist they refund the transaction and do it again allowing you to make the selection — you are well within your rights to do this as they have done something they should not have.

While they can choose whether to accept cards and which cards they can accept, they should not be manually selecting between local and home currency on your behalf.

Featured image by Gettys Images

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