Headed Overseas? This Easy-to-Make Mistake Could Cost You

view of Playa Gran y Esportal in Cadaqués, Spain
The view at Playa Gran y Esportal in Cadaqués, Spain. Photo courtesy of Jamie Cattanach

As I stacked my groceries on the short conveyor belt, I realized I’d missed an important European memo — the one about only buying what you need for a day or two at a time.

The people in the line behind me were each buying only a few vegetables or a package of pork chops and were already becoming antsy. Eggs, butter, shampoo, conditioner, celery… my basket’s contents suddenly seemed endless, and as I approached the cash register, I fumbled with my credit card. It didn’t have the fancy tap-to-pay feature everyone else’s seemed to, as I tried to explain in my faltering Spanish.

I was holding things up and making a fool of myself. And now that I’d finally figured out which end of my card to insert into the reader, I faced yet another obstacle:

Would I like to pay in U.S. dollars or euros?

Should You Choose Dollars or Euros When Using a Credit Card Internationally?

Considering how much is unfamiliar when you’re traveling in a foreign country, the option to pay in your home currency might seem a welcome convenience — an easy way to understand exactly how much you’re spending. The actual cost is the same either way, right?

Wrong, unfortunately.

The option to pay in U.S. dollars isn’t just a free amenity designed to help make international travelers feel more comfortable and well-informed. Rather, it’s a service called “dynamic currency conversion” or “cardholder preferred currency” — and as with most services, it comes at a cost.

Here’s how it works.

When you settle your bill by credit in a foreign country, the option to pay in “your” money is offered by a third-party operator working in conjunction with the merchant’s bank.

At the point of sale, you have the choice between two different payment options: the actual cost from the price tag in the country’s currency (for example, euros), and a total in currency you’re more familiar with (in my case, U.S. dollars).

What you don’t notice is that the two figures don’t actually match given the live conversion rate. If you grabbed your phone and ran your bill’s total through Google, you’d likely see that you owe less in USD than that “convenient” on-the-fly conversion would have you believe.

That’s because that third-party company wants its cut — so it includes a markup in the converted total. It’s usually on the order of 3% to 5%, but it’s occasionally as high 18%. Yikes.

And when you choose the “convenient” option of paying in dollars instead of euros (or whatever), that company pockets the difference.

Here’s an example.

The €26.50 dinner I had a few nights ago in Barcelona cost $31.26, according to my credit card statement.

(Quick thrifty globe-trotting tip: I always buy everything on my travel rewards credit card and then immediately pay it down, so I can rack up points and afford even more travel.)

But when I asked for la cuenta and the waitress brought over the credit card machine, it asked if I’d rather pay 26.50 in euros… or $32.67 in US dollars, including a 4.5% markup.

Sure, that’s only the difference of a dollar and change, but it’s still a dollar I could have spent elsewhere. Plus, my bill was fairly small since I’m traveling solo. It would have been a lot more if I were feeding a family of four!

So what’s the moral of the story? You’ve heard it before: When in Rome, do as the Romans do… including paying in their currency.

Oh — and when you’re in a tiny market in Barcelona, don’t try to buy a whole week’s worth of groceries.

Jamie Cattanach (@jamiecattanach) has written for VinePair, SELF, Ms. Magazine, Roads & Kingdoms, The Write Life, Barclaycard’s Travel Blog, Santander Bank’s Prosper and Thrive and other outlets. Her writing focuses on food, wine, travel and frugality.