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Q&A: When abroad, should I pay in local currency or pound sterling?

Holiday spending: Making the right choice when paying abroad could save you 10 per cent on the final bill.

by Sharron Livingston
Pound Sterling

Q: During a recent holiday, when paying for an item in a shop I was asked if I would like to pay in local currency or my home currency of pound sterling. Why do they ask this? And what should I opt for?

Going on holiday is expensive and one way of saving some money is to stay alert when paying a bill at say a restaurant or for a souvenir. Making the wrong choice could mean having to fork out 20 per cent more than necessary.

When paying by debit/credit card abroad (or even taking money from an ATM) travellers are often asked how they would like to pay – in local currency or their home currency. 

In this case, always opt to pay in the local currency. This is because if you pay in pound sterling you will be hit by DCC – Dynamic Currency Conversion -a process whereby the amount of a credit card transaction is converted at the point of sale or at the ATM to the currency of the card’s country of issue.

This type of conversion is notorious for offering poor currency exchange rates and the merchant will often apply additional fees of up to 18 per cent. 

Fees are often around six per cent but can be as high as 10 per cent. Over several purchases, you may find your holiday costing you far more than you had expected.

Even if you think it is easier to track your spending when you pay in pounds, consider the price you have to pay for this convenience.

Industry figures suggest that a third of UK holidaymakers use cards overseas, spending £26.4bn every year  The latest data from Fairfax FX reveals that 20 per cent of card transactions overseas this year – and 24 per cent of card spend – was subject to DCC to pay in pounds rather than local currency.

That means that a fifth of holidaymakers has been “duped” into paying up to 10 per cent on every bill or ATM transaction.

Don’t be a statistic. Always pay in the local currency.

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