When you are paying for something abroad, sometimes you are given the choice of paying in the local currency or sterling.

The advantage of paying in sterling is you can immediately see what the item will cost. The disadvantage is that it might turn out to be more than you would have paid in the local currency. When you pay in local currency, as well as taking into account the rate of conversion as applied by your credit or debit card provider, you may also have to pay a non-sterling transaction fee, which will be added to the cost.

What happens when you use your card abroad?

When you buy something (or withdraw cash) aboard using the local currency, it will be subject to the applicable exchange rate and in addition, a non-sterling transaction fee will probably be levied. This fee will depend on the card you are using. (Some cards do not charge the fee, although this may be a promotion or they may recover the cost in some other way, for example, through the exchange rate.)

Both the transaction itself in the local currency and the non-sterling transaction fee will be converted into sterling using what is called “the payment scheme exchange rate” from the day your transaction was processed. (For American Express, this is converted into US dollars first and then sterling.)

The two sterling amounts are then added together and divided by the original currency payment amount to work out the new exchange rate. You’ll see this rate on your statement.


The following example is from Barclaycard’s website. If you already understand the above, feel free to skip it.

Nigel makes a purchase of €50 using his Barclaycard Visa while on holiday in Dublin.

On the day his transaction is processed, the daily exchange rate is €1 = £0.709395

So his purchase is converted from €50 to £35.47

He has to pay the 2.99% transaction fee on the £35.47, which costs him £1.06

Add together the purchase and the fee, which is £36.53

And then divide that £36.53 by the original €50 purchase to work out the new exchange rate ( which includes the non-sterling transaction fee) – €1 = £0.73

Nigel’s statement will show the original charge and this new exchange rate

What is Dynamic Currency Conversion and should I use it?

This is when a retailer gives you the choice of paying in the local currency or in sterling. Paying in sterling makes the price you’re paying clearer, and means you don’t have to pay the non-sterling transaction fee (2.99% in the example above). But bear in mind that the retailer may still be charging you a conversion fee, and the exchange rate is set by the retailer and might not be as competitive as the ones set by Visa or American Express – so paying in sterling could end up costing you more.

How do you decide what to do?

You could check the current exchange rate on credit cards which is set every day by Visa or American Express. Failing that, just say no and insist on paying in the local currency. You will still pay the rate of the day plus the non-sterling transaction fee (unless you have got a card that waives this fee) but you will not suffer from what will almost certainly be a substantially worse exchange rate.

Why is Dynamic Currency Conversion a scam?

It is a scam because often you are not given the choice. For instance, when paying in a restaurant, check that the conversion has not already been made if the “point of sale” machine has recognised your card as “foreign”. Our forum users have encountered this

Dynamic Currency Conversion

You can insist on paying in the local currency (no matter what the retailer or hotel or restaurant says) but you may then see a voided transaction on your bill. Better that than paying it.

In addition, it is often a scam because it relies on knowledge asymmetry – namely that we are unable to easily and quickly assess the overall extra cost of paying in sterling rather than the local currency.