Today’s post comes from Odysseas Papadimitriou, who found that even him, a credit card industry expert, were caught off guard by a special fee called Dynamic Currency Conversion while he was traveling overseas. Learn what it is by reading below, and also an additional “must-know” tip when you travel in Europe these days.
I’ve been working in the credit card industry for almost a decade, and at this point I consider myself to be something of a subject matter expert. However, on a recent trip to London, I was humbled to discover some gaps in my basic knowledge of how to best use credit cards when traveling abroad.
During my stay in London, I used my credit card to make most of my purchases. Credit cards offer some of the best exchange rates and the convenience of not having to carry around large amounts of cash. I was also sure to use a credit card with no foreign transaction fee, so I knew I was getting a good deal. This was all well and good, until I came back home and received my credit card bill.
It was almost 10 percent more than the charges I thought I had made on my trip. When I examined my bill and receipts side by side, I discovered that I had been charged an extra fee for currency conversion on many of my purchases. My advice to you: never accept a merchant’s offer to convert your credit card transactions from the local currency into U.S. dollars. I accepted this offer many times while I was in London because an amount in dollars means more to me than the same amount in British pounds. What I didn’t know was that this is a consumer trap called Dynamic Currency Conversion.
Merchants use Dynamic Currency Conversion to charge travelers exorbitant conversion rates as high as 7 additional percent and pocket the difference as a fee. It gets by you because, if you’re like me, you’re not doing the math on the spot to see if the currency conversion is in line with the official exchange rate. If a merchant offers to make this conversion for you, save yourself some money and respectfully decline.
A secondary lesson that came from this trip, which I also learned the hard way, is that if you want to use your credit card in Europe, you need to carry your passport with you at all times. Most countries in Western Europe have switched to chip-and-pin technology for their credit cards. These cards are much more sophisticated than the magnetic stripe cards we have in the U.S. and offer more security.
Therefore, if you want to use the magnetic stripe cards, merchants expect that you have your passport with you as an added measure of security. This came as a surprise to me, given that in the United States they don’t even bother to verify your signature. Merchants will and have to accept your U.S. credit card, but if you don’t have your passport to identify yourself, you can pretty much forget about making the purchase.
Don’t get me wrong though. I believe that credit cards are one of the most effective ways to make purchases while traveling abroad. They offer favorable exchange rates, the security of not carrying around large amounts of cash, and the convenience of always having enough money and not being stuck with left over foreign currency.
In order to make the most out of your credit card though, my advice is to do the following: carry your passport with you at all times, decline any merchant’s currency conversion offer, and compare credit card applications for the best no foreign transaction fee credit card before you leave. If you do all of these things, there is no better way to make purchases overseas.