Which currency you choose when paying with your credit card makes a difference

When you’re traveling abroad and planning to use your credit card, there’s one simple choice you should commit to memory: always pay with the local currency, not your home currency.

For us, that means: no matter how tempting it might be to select the familiar U.S. dollar conversion that appears on the credit-card payment screen at the end of a purchase or meal, we’ve learned it’s best to choose the local currency. Right now, we’re in Ireland so that means we ensure any of our credit-card purchases are processed in Euros. Many payment machines appear to default to your home currency — and the staff who swipe your credit card often good-naturedly offer you a choice between the two. Unless you’re paying attention, it can be far too easy to select your home currency without a second thought.

Again, the short message to commit to memory: always select the local currency when paying with a credit card. The exchange rate you see on the screen before you sign may look fair, but it’ll be higher than what you see on your credit card bill at the end of the month — even if your credit card doesn’t apply foreign-transaction fees. Be sure to read Quartz’s critical look into this topic too.

Why does this matter? How much of a difference are we talking about?

When you pay in your home currency, this means you’ll be getting a worse conversion rate via the Dynamic Currency Conversion happening at the till compared to buying in the local currency. Even if it seems hard to believe, your credit card company will apply a better conversion rate after you make the purchase than you’ll see on the screen as you’re making the purchase.

So what happens to the extra money you spend when you use the default option of your home currency? An Financial Times investigation found that: “The upside is split between the restaurant, shop or hotel and the company from which they rent their payment terminals.” In other words, wherever you’re spending your money is likely getting a cut.

The amount varies, but that same Financial Times report indicated that the conversion rate offered at the point of sale — rather than behind the scenes after you make the payment — is on average 7.7% higher. This means that if your group dinner bill comes up on the credit-card reader as USD $80.78, if you choose the local currency option, that very same bill should process as USD $75. Depending on the restaurant or shop, this exchange rate could be even worse.

Or, less hypothetically: we once returned a rental car at an international airport before our flight from a major rental-car company and the attendant told us the bill was all set and would be processed and sent by email afterwards. Turns out, he ran the payment in U.S. dollars (instead of Euros) on a two-week car rental, which meant that we were overcharged by more than $50. The customer service agents were unhelpful, so it wasn’t until we followed up with our credit card company directly to identify the issue and reason why we saw this as a problem — there was no disclosure and it was done against our wishes — before we made any progress. We said we would be happy to pay the full rate of course, as long as it was processed in Euros. The car agency ultimately proved non-responsive to the credit-card company’s follow-up, so the credit-card company eventually ruled in our favor and returned the difference. If the tactic was indeed intentional, we wish we had filed a complaint as well. If it was an accident, then the whole issue could have been avoided easily at the start.

One more thing to keep in mind

During our travels, we’ve often had waitstaff or shop tellers quickly make the decision for us, either not thinking about it or simply assuming that we’d prefer to pay in our own home currency. We’ve learned to say “please process the payment in Euros” (or any other currency) the same way we try to remember to put our credit card back in our wallets after paying, though neither intention is foolproof.