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Dynamic currency conversion-what's the real story?

Rick's guidebooks advise against allowing credit card purchases in Europe to be converted to your home currency due to hidden fees. I am a Canadian just returned from the Czech Republic and Hungary. We did allow a few transactions to go through in Canadian dollars when we had the choice. If I make a purchase in any currency other than Canadian, Mastercard charges me a "service fee". It turns out that when I allowed my European purchases to be processed in Canadian dollars instead of the local currency it was converted at a fair rate with no extra fee and I avoided paying Mastercard's conversion fee. So I'm wondering- is Rick's advice outdated? wrong? or is the situation different for Canadian vs American credit cards?

Posted by
6183 posts

Yes, Rick's advice is geared toward a US audience. And there are differences in terms and product offerings between American and Canadian credit cards (I don't believe Canadians have credit cards offering a 0% foreign exchange fee like we do here with Capital One for example, do they?). However, just because you weren't charged an extra fee that doesn't mean that the conversion was at a "fair rate". I guess it depends what you mean by "fair rate" since there would be a markup over the interbank exchange rate, whether you'd notice it or not. I think you should figure out what the markup was first by looking at your statement and comparing it to what the interbank currency exchange rate was on the dates of your transactions - and then you can determine what the real cost of being charged in Canadian vs. local currency was. I hope that makes sense.

Posted by
2046 posts

There was no extra fee because they did not do a currency conversion, so no fee. You are still paying too much. You should be using a card with no foreign transaction fee. i can't speak for Canada, but we have 3 cards here that do not have this--CapOne Mastercard, Amazon Visa via Chase, TD Bank VIsa (which presumably you can get in Canada since TD is a Canada bank). I would bet anything that when you let them charge you in Canadian $$s that the cost was more than the 3% foreign transaction fee. With a card without a fee and without invoking DCC, you will be paying at the interbank exchange rate, no mark-up. DCC exists solely for the benefit of the bank and the merchant. Think of this in the same terms as when you used to see "ADM" on new car stickers. ADM translated to "Additional Dealer Markup". I am sorry to keep repeating this so many times on these boards, but we do not believe in giving money away for no reason other than to line the corporate pockets. Which is what DCC is doing. As other banks have shown, it is not necessary.

Posted by
5019 posts

It's simple.

IF you are using a credit card that charges no foreign transaction fee (and you should be), then Dynamic Currency Conversion is a needless, expensive scam, and a complete rip-off that you should always avoid.

IF you are using a credit card that does charge foreign transaction fees, you need to stop doing that. Plenty of cards out there do not charge these fees. Get one. They convert at a much better rate than you'll get from the Dynamic Conversion thieves.

Posted by
16847 posts

Unless something has changed recently (I think not likely) or Canadian credit cards operate differently (entirely possible), accepting DCC does not prevent assessment of the foreign-transaction fee. It's charged when the card is used outside the issuing country, no matter what currency is used for the transaction.

DCC is showing up more and more at ATMs as well as shops, restaurants and hotels, though the frequency varies by country. I've run into more than one Polish ATM that offered DCC and claimed there was no surcharge on the conversion, which I find hard to believe. I haven't written down all the figures and checked them against the official conversion rates, thougn.

Some credit-card readers in central Europe show the percentage of surcharge on the conversion; I've only seen 3.5% so far, which I think is low compared to what is often charged in western Europe. Poland is tricky because the credit-card display (unlike an ATM display) remains in Polish even if the credit card is foreign, and it's not at all obvious what the customer needs to do if he wants to decline DCC. Most of the time you need to press the red button on rhe device, but there are at least two kinds of software, and the screens look differemt. One server tried three times to charge me in zloty and couldn't make it happen, so I ended up paying with cash.

Posted by
1 posts

i find this quite helpful have checked with my cards and i have three that have no fees. Thank you

Posted by
16771 posts

I have been charged foreign transaction fees (by Bank of America) even for purchases that were made in dollars. This was a few years ago with a UK-based clothing that showed US dollars on the US version of their site, but didn't have USA office. It wasn't the stated currency that determined whether or not it was a "foreign" transaction.

Posted by
3994 posts

I have a U.K. credit card that charges no foreign fees and the conversation rate offered in the local currency is always about 10 percent better than if paying in GBP, which I never do.

Posted by
8631 posts

I am starting to see DCC where the conversion rate is stated before you make your choice. In some cases it's very close to the rate my bank used to convert the currency. I'm still going to choose the local currency over US dollars.

Posted by
4822 posts

It varies depending how your fees are structured. Many cards charge both a Currency Conversion/Foreign Transaction Fee (FTF) and a Transaction fee, others just charge a flat transaction fee. Depending on the card, if you choose DCC, they may waive all fees, just the FTF, or maybe no fees, all of which have been attested to here.

As to "if" your card does waive the fee, does DCC make sense? I suppose it depends on how much your fee is and what rate they are offering. That would require you to see the "offer" then do some quick math. For a high fee card, yes it might be best, but not something I would choose for my cards.

The other problem I have had is with the hand held terminals, you punch in your PIN, then there is some processing, and then the DCC question might pop up, by then the waiter has grabbed the terminal back and hits whatever response they think proper. It can be a struggle to hold onto the terminal long enough to see if DCC is offered, and then, to the OP's point, what the offer is. The percentage charged above interbank is up to the merchant and their CC processor.

Posted by
3441 posts

Since the question is about Canadian credit cards, it is accurate to say that none of the big banks (and Canada's banking system is far more centralized than in the United States) has a no-fee credit card for foreign exchange. A few small, obscure financial institutions have tried no-fee cards but they come with drawbacks, such as not having a local branch around the corner to deal with. The only shopping available for most of us is whether the card charges a flat fee or a percentage of the purchase.

Posted by
2466 posts

What Southam said.

Canadian CCs operate differently than US ones, even if they are under the same umbrella banking company. Therein lies the problem of asking banking questions on a forum that is predominantly American. For all intents and purposes, we don't have access to no FEX fee CCs, so there's no point in telling the OP to get one.

OP, I think you may have been lucky. Without knowing in advance what exchange rate you would be charged using the DCC (and they don't tell you this), you're gambling that it would be less than the FEX fee using the local currency.

Posted by
12103 posts

I go by the general rule that whenever I am confronted with the DCC be it paying for the hotel, ATM, etc. I turn down the DCC offer, opting to pay in Euro or GBP. True, sometimes it catches you off guard but I always reject the offer.

Posted by
3318 posts

Rick's advice is mainly aimed at US travelers when he talks about banking and other financial issues. Just like most of us here in the forum when we talk about it.

In the US, if your credit card company charges foreign transaction fees or foreign exchange fees, you will always pay the fee no matter if the charge comes through in USD or EUR or GBP or whatever. So if you accept DCC at whatever inflated rate the merchant uses, you pay the same 3% or so on top of the bad conversion. Makes no sense, but it makes the banks money. Other countries, like Canada, may not have caught on to the scheme yet.

The MasterCard service fee is charged to your bank. They choose whether to forward that on to you and can add in a few percentage points if they like. Same with Visa. In the US, any fee added to your foreign purchases must be reported as a separate line item on your statement.

The no fee cards are so popular here in the US because when the banks first started offering them, the other banks noticed it was high spenders who were using them. The card issuing banks still get the interchange fee for all transactions (this is a percentage amount subtracted from what the shop gets when you pay with a credit card) so with the high dollar spenders using these cards they all wanted a part of the pie. Now almost all card issuers in the US have one or more no foreign fee card available. Competition is good.

Posted by
30 posts

So the bottom line is this: the customer needs to know :
1) the "bank" exchange rate (sorry if I'm using the wrong term) at the moment of transaction
2) the exchange rate the credit card company is going to use if the purchase is made in foreign currency
3) the exchange rate used for DCC
4) the foreign currency exchange fee that the credit card company adds on (unavoidable for Canadian cards I think)

With the possible exception of 4) there's no way the customer has access to all of this at the time of purchase so it's basically a crap shoot.
This doesn't make the decision to accept or reject DCC any easier!
BTW the agent I spoke to at Mastercard (in Canada) had never heard of DCC and the driver we hired one day in Czechia (who is a Masters student in Economics and works for a bank) thought DCC is a better option than paying in the local currency.

Posted by
6183 posts

With the possible exception of 4) there's no way the customer has
access to all of this at the time of purchase so it's basically a crap
shoot.

All you need is an internet connection (or wifi) to look up the interbank exchange rate online on any given day, so that's definitely doable. You could even look at those rates after your trip, so you don't need live info for that (https://www.oanda.com/fx-for-business/historical-rates). And you could find out your credit card terms for using the card overseas well before the trip. I don't even bother calling the bank, I request the info online and get a copy of all the small print (I keep it for all my cards). So the only thing you wouldn't know is 3). Everything else is easy to get/find.

Posted by
4500 posts

When a merchant or bank offers DCC, they are no longer obligated to use the interbank exchange rate. They can set their own exchange rate. So while its possible a few do use the interbank rate and just offer DCC as a helpful convenience to their customers, I find it highly unlikely that most merchants and banks don't take advantage of the opportunity. Some may raise the rate only a small amount, others might jack it up 10%.

The safest thing to always to decline DCC. There is no need or real value in trying to figure out whether it is good or bad each time its offered.

Its a bit like currency exchanges offering "no fees" when they are really hiding their costs in their poor exchange rates.

Posted by
3318 posts
  1. I think you are referring to the "interbank" rate. This is the rate the large currency exchanges use when buying and selling multi millions in the given currency. Luckily, this is also the rate the credit card networks use when changing from Euro to CAD for example. Your actual bank has no input to this number, it is predetermined by the credit card networks each morning at their start of business (03:00 to 04:00 Eastern). While the actual interbank rate can change during the day, it usually is not a huge swing. The rate the card networks use does not change during the day. If the merchant or ATM owner delays the final posting of their transactions (they can) the rate you actually get may differ from what was in effect at the instant of the transaction, but will always be the rate in effect for the business day the actual settlement occurs. You can always find the most current rate using Google. Enter something like '1 EUR in CAD' and it will tell you.

  2. This will be the same rate as in #1. Your card issuing bank has no control over the network rate and is not allowed to change the rate. (Which is why they charge fees!)

  3. This is where DCC hits you. The merchant sets the rate at whatever they want it to be and change it whenever they want. They cannot change the rate for your transactions after being sent to the network even if they do not actually settle the items that day. It can be up to 18% in favor of the merchant. It is usually best to decline. The charge machine or the ATM should display the rate they used on the screen and also on any receipt you get.

  4. True, the fees you will be charged are fixed and known. You will have to ask the card issuer what they are and if they apply to DCC. The fees always apply in the US to every transaction. Note that the foreign exchange cost to the bank is never over 1%, and in some cases as little as 0.25% depending on their transaction volume, and for credit cards they get a reimbursement of up to 3% on every transaction, really costs the card issuer nothing and anything over the 1% is a pure profit grab.

You will find most Credit Card customer service agents only know things about the local use of their cards, not international. In some cases if you have a travel related card, like an airline affiliate or hotel, they might know a little more. You can usually find out more looking at your terms and conditions document you received with your card.

Posted by
607 posts

I just came back from Hawaii and I was hit with a form of DCC on my car rental from Avis.

When I picked up the rental car, the rep told me that Avis would charge my credit card in CAD with a higher exchange rate unless I specified upon drop-off that I wanted to pay in USD which would use the credit card rate. When I returned the car, i went to the office and requested that i be charged in USD. That rep said no problem.

However when I got my credit card statement, I was charged in CAD for the car rental. The rental exchange was about $1.36. All my other transactions were in USD with an exchange rate of about $1.32, about a 3% difference. I did not bother to dispute.