By David Stewart White
When it comes to siphoning off money from travelers, the financial services sector ranks shoulder-to-shoulder with the airline industry. But unlike baggage fees and seat upgrade fees, the extra costs charged travelers at ATMs and cash registers are often hidden. Worse yet, the fees are often disguised as helpful convenience services.
Dynamic currency conversion is one of the most insidious of the financial service hidden costs. Here's how it works:
A traveler takes her US credit card to Europe and uses it to pay for a fantastic local meal. After much food (and wine) the bill arrives, she hands over the credit card, and the restaurant offers to charge the meal in US dollars, instead of euros...as a convenience. Sometimes, there is no choice offered, the credit card receipt automatically comes back in dollars.
Seems like a good deal? Think again. This is called dynamic currency conversion: the merchant's payment system converts the charge from euros to dollars at a poor exchange rate, with a hidden markup of several percent. If our traveler had paid for the meal in euros, the credit card company would have used a much better rate when converting the charge from euros to dollars.
- Rule one: Always insist that charges be made in the local currency (euros in most of Europe)
Now to save even a bit more, our traveler could have checked something else about her credit card before heading to Europe. Different card issuers charge different fees for using a US card abroad. The difference can be sizable: from no fee to as much as 3-to-4 percent for each transaction.
- Rule two: Find out what your credit card company charges to use the card abroad.
- Rule three: If the answer to rule two is more than 1 percent, find a new card.
Can it get worse? We didn't think so until we heard about this next terrible combination punch. A credit card that includes an overseas transaction fee may add that fee even if your charge has already been converted to dollars via dynamic currency conversion!
So our hapless traveler paid for her fantastic meal using her credit card, the merchant converted the bill to US dollars (with a fee), and her home credit card company still added the overseas transaction fee to her monthly bill. Talk about post-meal indigestion!
Thinking that maybe the best thing to do is pay in cash? In our next segment, we will discuss changing money, currency conversion, and using ATMs in Europe.