What do you do when you go to pay for something in Europe, and the cashier or machine asks you, EUR or USD? It gives you the price in each currency, almost like it has done you a real service providing how much it will cost in dollars. And you just have to make the choice, right there, on the spot. Euros or dollars? This seemingly harmless question is really asking you whether you want to pay a premium for the charge to post in your home currency, instead of the local currency!
The Currency Dilemma
So what is really going on here? Someone is hoping to skim a little money off the top of your purchase by charging a dynamic currency conversion fee (DCC). They are offering to convert the transaction to your currency for you, and they have built in a convenience fee for this service into the price you see. It probably isn’t a good deal for you. I always choose to pay in the local currency. This means I select EUR (euros), CHF (Swiss francs), or GBP (British pound sterling). Or whatever the local currency is. But never, ever, do I choose to pay in USD (dollars) when I am outside the United States. I also only use cards with no international transaction fee. This means the question of USD or EUR is really asking me whether I want to opt in to pay an extra fee for this transaction. Selecting USD means yes, selecting EUR means no.
Free ways to calculate what it's going to cost you in dollars
I usually check the exchange rates before I travel at www.xe.com, so I have a general idea of the cost in my currency. Then I can use the free XE App to check exchange rates and calculate prices on the go. If you will be using various currencies during your travel, you can easily track all of them on one screen in the XE App.
For example, if you are wondering what that 24 EUR shirt is going to cost you back home, check the price in the App before you even get to the register. The price you see in Europe is the price you pay (taxes are already included) so you don’t need to wait for the cashier to ring it up. At the time of writing this post, the XE App tells me that 24 EUR shirt is going to cost me $26.28 USD. The Visa Exchange Rate Calculator tells me it is going to cost me $26.33 USD, And the Mastercard Exchange Rate Calculator tells me it is going to cost me $26.33 USD. In this scenario, the XE App is only off by 5 cents and is likely explained by Visa/Mastercard adding a nominal mark-up over European Central Bank Rate. The XE App comes close enough for me. And I did not find an official calculator for AMEX or Discover Card. Note that these conversions do not include an international transaction fee. You need to add your card’s fee to the Visa and Mastercard calculators if your card charges one.
Use a credit or debit card with no international transaction fee
The other key to not paying more than you need to for a foreign transaction is to use a credit or debit card with NO international transaction fee. When your card does not charge an international fee (usually 2-3%), you are simply paying the market rate determined by Visa, Mastercard, or whoever’s network your card runs over. They offer you the best market rates because you are piggy-backing off the competitive rates they get because of their size and volume. So make sure you travel with a credit card, or a couple of credit cards, that have no international transaction fee. Usually credit cards marketed for travel or offering travel benefits do not charge an international transaction fee (so it actually appeals to travelers). And this saves you money. For example, if you pay $4000 total in lodging, food and spending on your trip, a 3% international transaction fee is going to tack on another $120 to your bill.
Also be sure to check with your bank about your debit card. While I don’t recommend using your debit card for purchases abroad, I do recommend bringing one just in case you need to withdraw some cash. And I don’t want to pay an international transaction fee on my cash withdrawals oversees either.
Selecting currency at an ATM
Last year, in Greece, Gary was in a rush to get some Euros as soon as we hit Athens. Before I could stop him, he slid his debit card into some tourist- looking ATM and made the transaction. He chose to complete the transaction in USD. As soon as I got wind of what he was doing over there, I knew it was going to be bad news. Sure enough, he paid approximately 10% in a mark-up fee for his Euros! He realized his mistake almost immediately since the markup was so high. We will blame it on jetlag; as it is a rookie mistake.
However, taking out cash oversees at an ATM can be a smart move. As long as you aren’t paying an international transaction fee, you are going to get the most favorable exchange rate at the ATM machine. And you select the local currency. I highly recommend using an ATM machine associated with a local national bank rather than a random ATM machine that has popped up in a touristy area. Basically, my personal rule is to use an ATM a local would use. If you aren’t sure what the bank names are in the country you are visiting, google it before you go. It’s a good thing to know. You will probably still play a flat transaction fee, like you would with any ATM machine. In my case, I have found the ATM fee to be comparable or less than the cost to ship foreign currency from my bank to my house before I leave (and the ATM exhcange rate is much better).
So why would anyone choose to pay in dollars?
Now if you are traveling with a card that charges an international transaction fee, making the choice is less trivial for you. This is because you will be paying a fee either way; whether you choose dollars or euros. You are simply choosing whether to pay the international transaction fee or the dynamic currency conversion fee (DCC). Ideally, you would select the option that ends up costing you less. In this case, if you choose dollars (USD) you will pay the amount you see and that is what will post to your card statement. If you choose euros, your credit card or debit card issuer will convert the amount for you at a favorable exchange rate, but tack on the international transaction fee. The amount of these fees can vary, so it is difficult to provide a general answer for which option to choose. You can use the Visa or Mastercard calculator to get an estimate for how much it will cost if you select euros; just be sure to add your card’s foreign transaction fee to the calculation. Then you will know which is less expensive in your case, dollars or euros.
So what cards do we travel with?
So, what is in our wallets (when we travel)? We bring some euros in cash for the occasional bathroom fee or the one restaurant on every trip that doesn’t accept cards. But, we mainly rely on our credit cards.
My favorite the past few years has been the Chase Aeroplan card. First of all, I always use it to pay for our plane tickets because it has free cancellation/trip interruption insurance, free lost luggage insurance, trip delay insurance, etc. I also use if for car rentals because it has primary car rental coverage when overseas (which is awesome). It also offers purchase protection on items for 120 days, so I use it if I am buying something for a trip in case it is lost or stolen. It also comes with me on every trip because it has no international transaction fee! This card was made for people who travel, and it is hands down my favorite card. However, I also bring my a few extras as backup and rarely need them.
Chances are you already have a card with no international transaction fee. That is the one you want in your wallet when you travel!
Teaching my kids how to pay in Europe
A couple of years ago, I learned about Greenlight debit cards for kids, and signed up to use it to pay our kids their allowances. Since then, this card has been great for other things too, especially travel. We used to deal with the kids asking for all sorts of things, every place we stopped, every day of the trip. Now we can give them a trip budget they manage and can decide for themselves whether they want to buy something. We load a set amount onto each of their cards. It has been a very helpful tool with an awesome App. The kids see their balances and transactions in real time in the App, and so do we parents. And there is no international transaction fee! We do pay $10 per month total for our family’s account, but it is worth it for us (and there is a cheaper plan available). We like that our plan includes insurance for each kids’ cell phone. If you are looking for a debit card designed for kids and teens, where you can send them money, assign chores, and teach them to save and invest, I’d be thrilled if you use my link to sign up (plus you’ll get $30 if you choose to sign up).
Yesterday I asked my youngest whether she should pay in USD or EUR in Europe and she said euros! They learn young.
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