Why You Should Pay in Local Currency When Traveling Abroad

When I mentioned to a co-worker that I was vacationing in Europe this summer, this intrepid traveler shared an excellent money-saving tip with me:

When you're using your credit card to pay for a purchase in a foreign country, make sure you're charged in local currency, not your home currency.

This simple tip is going to save me hundreds of dollars over my lifetime. Here’s why:

When I request to be charged in the local currency, my card issuer will make the conversion for me when they process the charge; banks and credit unions typically get the best exchange rate for the day of the purchase, which they pass on to their cardholders.

However, if I elect to be charged in U.S. currency, a third party enters the transaction, an intermediary between the merchant and the card issuer that calculates the currency exchange while I’m waiting to sign my charge slip. The convenience of knowing that my purchase cost X U.S. dollars as I’m settling my bill comes with a cost: anywhere from 3% to 3.5% of my purchase. On top of this fee, the intermediary will slap me with an exchange rate that’s not as good as the one my card issuer will give me.

With a big purchase like a hotel stay or car rental, being charged in local currency instead of U.S. currency is going to save me a LOT of money…money I can save for my next trip abroad.

My co-worker added that merchants will kindly offer to – nay, even automatically – charge me in U.S. dollars. (They benefit when you pay in U.S. currency by earning additional revenue with each transaction.) In the first case, ask that they run the charge through in whatever local currency they use and in the second case, insist they void your purchase and run the charge through in local currency.

If you want to know how much you’re paying in U.S. dollars, it’s easy to figure out with simple math or by using the calculator on your smartphone. Take the amount you’re paying in local currency and multiply it by that day’s exchange rate, which will give you a rough idea. (I do this anyway with every purchase I make while traveling abroad, so why pay someone 3% - 3.5% to do it for me?) An even easier solution is to download a currency conversion app to your smartphone before you travel.

Here’s an easy way to remember to pay in local currency: When you’re asked, “Euros or dollars?” think of the phrase, “When in Rome, do as the Romans do.” Romans pay in euros…and so should you.

And don’t forget: set a travel notification with your credit card issuers to avoid having your legitimate charges declined by their fraud detection systems.

Happy travels!