The ups and downs of Dynamic Currency Conversion


Dynamic Currency Conversion is, essentially, a scam. The credit card processing company gives you the “convenience” of knowing exactly what the charge will be in your home currency, but that convenience comes at a price, generally a few percentage points. And, almost universally, it is bad for the consumer. I just experienced the joy of DCC for the first time while purchasing a flight.

dynamic-currency-conversion-dcc-flybe

FlyBE is willing to “help” me as a customer and charge me in US Dollars for my ticket. And that “help” only costs me $6, or approximately 4.5% of the total purchase price. Even worse is that the DCC’d transactions generally do not avoid any foreign exchange transaction fees imposed on the consumer by the credit card issuer. Even though you are now paying in the currency of the card it is still a foreign transaction and still incurs the fee.

And, yet, I found the exception to prove the rule. Last month I was in Santiago, Chile for a couple days and spent a night at the Grand Hyatt Santiago. It was a cash & points booking (I’m pretty sure that matters) and so as I went to leave I asked to pay the cash balance in Chilean Pesos. The guy insisted pretty hard that I pay in US Dollars instead. And it seems he was correct in terms of saving me some cash.

grand-haytt-santiago-dcc

The conversion rate is roughly correct for what the value should be, but I still managed to save ~$10 on the transaction. It seems that if he billed me in Chilean Pesos then the transaction would be subject to a 19% tax, but the bill in US Dollars is not hit with that fee. So even if it is a couple points higher on the DCC rate – and in this case I’m not convinced it really was – the savings by not paying the 19% tax still makes it a good idea.

Not that I had any idea going in to the transaction that the DCC would save me money, of course. But it turns out there’s always an exception to prove the rule. And, once again, I found it.

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Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, and LinkedIn.

9 Comments

  1. Great points Seth. I ran into this recently when booking some train tickets in Europe for next week and saw this same sort of online “choice”. I almost fell for it and almost used the wrong credit card that had foreign transaction fees (Yes Citi AA business card I’m talking about you). I chose the local currency and used my Chase Sapphire card with no FTF’s and saved at least 5% just guessing.

  2. I absolutely hate DCC and agree it’s a total scam. The “convenience” of knowing what the price in your home currency is pretty useless, because by that time you’ve already decided to purchase, and also because doing the conversion some other way (eg by smartphone) is so simple. I get especially annoyed when hotels or other establishments charge me in USD through DCC even when I’ve explicitly chosen otherwise by marking the local currency on the receipt – that’s happened to me enough times to convince me it’s not an accident – they do it because it’s very profitable. Also watch out for a similar thing at ATM’s which offer to convert your cash withdrawal to USD (not dispense USD, just charge you in USD) – I’ve compared the exchange rate offered to what my bank used, and the latter rate was always better by close to 10%.

  3. You should elect to settle hotel bills in Peru in USD as well; doing so avoids the same 19% VAT Peruvians must pay on such transactions (presumably in PEN).

  4. Note that saving the 19% VAT in Chile applies only to hotels paid in US$, not on other purchases, so for all other spending pay in Chilean pesos.

    In Argentina you can save the hotel VAT by paying in US$, but you want to pay in Argentine pesos despite that. That’s because you can get about 14 pesos for a US$ almost everywhere (other than at an official bank), but you’ll only get the official rate of 8.6 pesos (as of today) from a bank or your credit card company. The spread between 14 pesos per dollar and 8.6 pesos per dollar is worth way more to you than the VAT.

  5. I’ve had several small merchants plead ignorance on DCC – they might even be telling the truth. I’ve decided not to worry about it for small transactions (the hassle of getting it corrected is greater than the cost) but to be careful on larger purchases.

      1. Totally agree. When giving the card to the merchant, strongly recommend saying “please process this transaction in Euros” (or whatever the local currency is). (But I have run into situations where the transaction is automatically processed in USD unless the merchant takes the right steps up front to override the defaults.)

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