When Using Your Credit Card Abroad, Should You Pay in Pesos or in the Local Currency?
The first time I was asked if I wanted to pay my credit card purchase in peso or in Japanese Yen, the local currency of the country I was visiting then, I admit I did not know how to respond. That was a shame as I had already been working in a bank for about a decade, and our company was reputed to be one of the leading credit card brands.
You’d think I would have the inside information, but I didn’t have a clue so I took the safe bet and answered peso
Turns out I did what was intuitive to almost all consumers—going for the familiar. What I totally missed was that I just agreed to
Paying in peso can mean additional transaction fees, plus a conversion rate that is nearly always worse than if you chose to settle the transaction in their local currency instead.
Money gurus will tell you paying in cash will give you more bang for the buck when
But many prefer the convenience of paying with a credit card, and the safety too—as pickpockets can be found in all four corners of the globe. So if you don’t want to leave home without your trusty plastic currency, take note below of some of the extra baggage you are carrying whenever you make a swipe.
Have you heard of the Dynamic Currency Conversion fee?
While Dynamic Currency Conversion (DCC) was introduced back in 1996, it took a while for the practice to become widespread. DCC is a fee imposed on credit card payments when you choose to pay in your home currency, versus the local currency of the country where you made the swipe.
DCC is normally provided by a company that acts as a go-between from the merchant and your credit card issuer. They can charge around three
Whatever the mark-up, this is one fee you could have done without.
Experts weigh in and they vote No to peso too.
The country’s first bank and one of the aggressive credit card companies today also advise you choose the local currency.
According to BPI: “In our case, for BPI Credit Card, choose the foreign currency instead of
In an interview with GMA News, China Banking Corp. senior vice president Alexander Escucha shared some candid advice. “Although it seems simpler to have your international purchases charged in pesos so you don't have to do the math yourself, avoid it because it's a double whammy.”
“The merchant converts the purchase from the local currency on your behalf—this is called Dynamic Currency Conversion—but the kicker is, the merchant will charge you for the DCC service and apply an exchange rate that is virtually guaranteed to be terrible, and your credit card will do another exchange rate conversion.”
Can the merchant help me choose?
Forget asking the store clerk which will provide you better value—opting for
As many consumers prefer to pay in a familiar currency (meaning their own), sometimes the waiter or salesperson will just assume you want to pay in your home currency and make the choice for you.
One more thing to note: Merchants make additional income from incentives whenever you use DCC that’s why they sometimes push it.
local currency, but was charged in peso anyway!
During my enlightened phase, I once remember choosing the local currency at
Then it happened again in another trip—but this time, thanks to online money hacks, I knew what to do: I told the store to void the transaction, and then charge it again this time in the local currency. They looked at me like I had lost my mind, but it was a significant purchase and I wanted to pay fewer fees and hopefully enjoy a better exchange rate too.
Does this mean I pay no fees when I choose
No. We said fewer fees, not zero fees.
Generally, banks charge a flat fee each time you use your credit card abroad. And it’s not only when you travel, as some banks charge a fee on all foreign purchases so that covers your online spending too.
A quick look at the website of Citibank shows they charge their credit cardholders a foreign transaction service fee. Here’s the text in full: “All charges made in foreign currencies will automatically be converted to Philippine peso on the posting dates at the prevailing exchange rate determined by Visa/MasterCard. A fee of up to 3.525
BPI calls it a Foreign Currency Conversion fee on their website and charges what appears to be a much friendlier rate of 0.85
All these may seem to be too much for a casual