I was in Niagara Falls, Canada a few years back and when I went to pay for the tickets for the Hornblower Niagara Boat Ride, I was offered the choice of paying in Canadian Dollars or US Dollars. Stupidly, I chose US Dollars and the tickets ended up costing me 15% as a result. Why is that you ask?
The Hornblower Niagara Boat Ride charged a hidden fee on the service and they converted my US Dollars at an extremely high currency conversion rate. It made me think on what is the right way to do when given the local currency or USD option?
Generally, it’s better to charge your purchase in the local currency. Here’s why:
- Better exchange rates: Your credit card company usually offers more favorable exchange rates than the merchant. I am pretty certain that the credit card company will have a significantly better rate than a local merchant.
- Avoid hidden fees: Merchants might add fees when converting to your home currency (Dynamic Currency Conversion or DCC). According to CNN, the average DCC fee applied to this kind of conversion is a whopping 7.6%
- Easier tracking: Your transactions will be listed in your home currency, making it easier to reconcile your spending.
Exceptions
While it’s generally recommended to pay in local currency, there are rare exceptions:
- Extremely high foreign transaction fees: If your card has exorbitant fees, paying in your home currency might be cheaper, but double-check the merchant’s conversion rate. Advice, avoid credit cards with high fees.
- Unpredictable currency fluctuations: In times of high volatility, paying in your home currency can provide some protection, but this is a risky strategy.
Always double-check the total amount before confirming the payment. Some merchants might try to default to your home currency, even if you request local currency.
The difference can be as low as 2 or 3% or as high as 15% (which I was nailed for) for paying in US Dollars rather than the local currency. So I think it is pretty clear to choose the local currency rate rather than US Dollars if given the choice.
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