Should You Pay in Local or Home Currency When Traveling Abroad?

4 Min Read | Last Updated: July 5, 2024

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If you’re going to use a credit card on an international trip, you might be wondering whether to pay in local or home currency. Learn why local is usually best.

At-A-Glance

Depending on the credit card you use when traveling abroad, you could pay fees that total 6% or more of purchases.
Using a credit card with no foreign transaction fees and choosing to make purchases in local currency may save you money.
Currency conversion apps can help you better understand pricing and identify hidden charges.

When traveling internationally, you may carry cash, access ATMs, or charge just about everything to a credit card or debit card.¹

Yet when paying at a hotel, shop, or restaurant, you’re likely to encounter a choice: Should you pay in the local currency or in your home currency? Of course, if your preference is to pay in cash – or if it’s necessary to do so – it’s a moot point. With cash, there are no additional fees at the point of sale, though you may have paid a fee at the ATM or currency exchange booth.

Paying with a card is different. Presented with the local versus home currency option, the decision you make can lead to significantly different costs. With a credit card that has no foreign transaction fees, you can usually save money by selecting the local currency option.

The Right Credit Card and the Right Currency Choice Can Trim Costs

The best credit cards for international transactions are designed to help travelers navigate the sometimes-tricky waters of foreign currency conversion, and these cards are often accepted at a large scale internationally. Credit cards convert these international transactions at the current exchange rate, typically based on a globally recognized floating rate.² So, whether you’re savoring paella at a restaurant in Spain or buying a wool blanket at a shop in New Zealand, you’re paying the exchange rate at that moment.

Nevertheless, several factors can lead to different outcomes and costs. One of the most important issues is the type of credit card you use. If you use a card that charges foreign transaction fees, you might expect to pay about 2% to 3% of each transaction in fees, but that number can vary according to the card or card issuer.³ Depending on how much you spend over the course of a journey, such fees can take a considerable bite out of your travel budget. So, it’s wise to select a travel credit card that doesn’t tack on foreign transaction fees.

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Second, it’s critical to be aware of “currency conversion fees” or “dynamic currency conversion” (DCC), which gives travelers the option to convert the purchase price into their home currency. However, these conveniences come with fees, and those fees aren’t always easy to spot; they’re often stealthily built into the transaction. For example, if you choose to pay for items in your home currency, you may be subject to a DCC fee imposed by the merchant’s credit card processor.³

In practical terms, you may pay more to use DCCs, and in some cases you might pay as much as double the basic currency exchange fee for a foreign transaction. Because the fee is hidden within the overall price, it’s often unclear what exchange rate is being used for the conversion.⁴

The consequence? Say you’re paying $1,000 for a four-night hotel stay and you decide to pay in your home currency. You could easily wind up forking over $60 in unnecessary fees (about 6%). Add that to airline, rental car, restaurant, and shopping expenses over the course of a trip, and you could unknowingly spend hundreds or even thousands of additional dollars without even realizing it.

Understanding the Mechanics of Foreign Transactions Can Save You Money

Why would anyone choose to use dynamic currency conversion? Simply put, it is a value-added service. The ability to view transactions in your country’s currency is typically easier to understand. What’s more, you view the converted price at the exact moment you make the purchase.⁴

However, most of the time there are other less costly ways to negotiate foreign currency conversions when traveling. One of the simplest methods is to use a currency converter app on your smartphone – or look up the exchange rate – and determine the real cost using the calculator on your phone. This also makes it possible to view any potential added fees that have been inserted into a transaction, especially if it’s a DCC transaction.

Keep in mind that the best credit cards for international travel don’t impose foreign transaction fees. If you use one of these cards and avoid DCCs by selecting the local currency payment option, you will usually come out ahead.

The Takeaway

It’s vital to understand how sometimes-hidden credit card transaction fees can add up and chip away at your dream vacation budget. These include direct foreign transaction fees tacked on by credit card companies and dynamic currency conversion fees that allow you to view and make a purchase in your home currency. While there are some situations where it may make sense to use DCCs, it’s usually better to pay in the local currency – especially if you use a credit card that doesn’t charge foreign transaction fees.

¹ “Accessing Money Abroad,” Buffett Institute for Global Affairs

² “How Are Currency Exchange Rates Determined?,” Britannica

³ “What Is a Foreign Transaction Fee on Your Credit Card?,” Experian

⁴ “Dynamic Currency Conversion Payment Options Specifically Harm Less Financially Literate Customers,” Journal of Public Policy & Marketing

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Samuel Greengard has traveled to 65 countries and all 50 U.S. states while writing about business, technology, and finance for numerous magazines and websites. He is the author of the book “Internet of Things” (MIT Press, September 2021).

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.

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