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Should you pay in local currency when abroad?

When you’re trotting the globe, soaking in the sights and sounds, the last thing you want to worry about is whether you’re getting fleeced by currency conversion fees. But here you are, standing in a charming little boutique abroad, and the card machine is asking: “Pay in local currency or GBP?” It’s not just about the choice between two currencies; it’s about understanding the concept of Dynamic Currency Conversion (DCC), the implications of the exchange rates, and how to make the best financial decision while you’re away from home.

Let’s get conversational and delve into the not-so-talked-about facts of paying in local currency versus sterling while abroad.

Understanding Dynamic Currency Conversion (DCC)

Imagine you’re at an Italian café, and after a delightful meal, you’re ready to pay. If you opt for DCC, your bill is converted to GBP immediately, using the café’s exchange rate. While it might seem convenient to see the cost in pounds, this convenience comes at a cost, often including a high conversion rate plus additional fees. It’s the financial equivalent of adding truffle oil to a dish – it sounds fancy, but is it worth the extra cost?

The truth is, DCC is often not the best deal for you. The exchange rates are typically less favourable than what your home bank would offer. Plus, there’s often a markup, because who doesn’t like a bit of extra profit? It’s like asking a street vendor for the price, and once they hear your accent, the price mysteriously rises.

Weighing the Costs: Paying in Local Currency Versus GBP

Paying in the local currency usually bypasses the DCC markup. Let’s break it down with an example. Say you’re buying a piece of art in Barcelona for €100. With DCC, the conversion might work out to £90 with a subpar exchange rate and fees. However, if you choose to pay in euros, your bank does the conversion, possibly at a better rate, let’s say £85. Those £5 savings could buy you a couple of tapas or a refreshing glass of sangria.

Now, this doesn’t mean your bank won’t charge you anything. There might be foreign transaction fees, but these are usually less than the DCC’s premiums. It’s essential to check with your bank before you travel to understand their fees.

Exchange Rates and Hidden Costs

Exchange rates fluctuate, that’s their nature. When you choose DCC, you’re stuck with the rate provided by the vendor, which often includes a cushion for them if the rates swing. But when you pay in local currency, you’re subject to the interbank exchange rate, which is generally more favourable and transparent.

The hidden costs in DCC can creep up on you. For instance, some vendors may charge you in GBP without even asking. That’s why it’s crucial to be vigilant and ensure you’re always given the choice. Don’t shy away from asking to be charged in the local currency.

The Practical Advice: How to Avoid Unnecessary Fees

Now, let’s get to the practical part. Here’s what you can do to avoid unnecessary fees:

Inform Your Bank: Before you travel, tell your bank where you’re going. This prevents your card from being blocked for overseas transactions.

Understand Your Bank’s Fees: Know what your bank charges for foreign transactions and withdrawals. Some cards are travel-friendly with no foreign transaction fees.

Always Choose Local Currency: When given the option, always choose to pay in the local currency. Let your bank handle the conversion.

Use the Right Card: If you travel frequently, consider getting a card that’s designed for travel, with low or no foreign transaction fees.

Keep an Eye on the Card Terminal: Ensure the transaction is being processed in the local currency before you enter your PIN.

Get a Currency Conversion App: Use it to check the current exchange rate so you can make informed decisions.

Withdraw Local Currency from ATMs: It’s often cheaper to withdraw money from ATMs in the local currency than to pay using DCC.

Smart Spending Abroad with Your DT&T Debit Card

Navigating the maze of currency conversion while travelling can be as tricky as trying to order coffee in five different languages. But with a little knowledge and some savvy travel hacks, you can sip that cappuccino without worrying about paying more than you should. Remember, when abroad, embracing the local currency is not just about getting a good deal; it’s about immersing yourself in the culture, even down to the coins jingling in your pocket.

If you have a DT&T Bank Account, you can order a debit card to use with it. For instance, if you’re armed with a DT&T debit card, you’re already on the path to smart travel spending. These cards often come with travel-friendly benefits, including competitive exchange rates and reduced transaction fees, which make them a wise choice for globetrotters. By choosing to pay in local currency with your DT&T debit card, you’re getting the interbank exchange rate and avoid the higher costs associated with DCC.

Now, think about your next trip. With these tips in mind, are you more confident in deciding whether to pay in local currency or GBP?