While travelling abroad, it is quite tempting to use our home currency whenever we are asked to pay, since we are much more familiar with it. We consider the store "convenient" for solving our problem of currency conversion. But, this can cost us significantly more in hidden charges and conversion fees.
Using local currency abroad can be much better for the wallet by avoiding needless conversion charges of ATMs, using cash for small payments, evading DCC in stores and getting prepaid forex cards loaded with local currency. It also reduces redundant currency circulation, minimises paper waste and transport emissions.
Small conversion charges gradually add up to a high amount every time we pay when abroad. You can take a few essential measures to prevent this waste of money and have a budget-friendly international stay.
Foreign stores or retailers often offer you the choice to pay in home or local currency when using credit/debit or forex cards. If you choose to pay in home currency, you will use what is popularly known as, dynamic currency conversion (DCC) or cardholder-preferred currency (CPC).
This is entirely handled by the merchant wherever you are making the transaction, instead of your bank or your credit/forex card issuer.
DCC is the way how your home currency is immediately converted into whatever the local currency is at your point of payment. It sounds like an easy solution to the conversion hassles, but it can cost you much more in conversion charges.
The average conversion fee of DCC is easily 7-8% while the standard foreign transaction fee for using local currency through a credit card would be nearly 2%.
While this may seem little, these charges quickly add up, burdening your wallet unnecessarily.
The conversion rates in local shops or places that offer DCC are often very high since they set their own exchange rates. The same can be said about accommodation facilities, grocery stores and restaurants.
These stores often use DCC as a way to earn more from foreign travelers, since it is generally non-transparent. The fees for this conversion might be hidden from the payer. There are chances that one may be succumbing to deception too, like the conversion fees being disguised as exchange rates.
A simple method of countering this is keeping track of real-time currency conversion rates before spending. Calculate the cost of the service or item you are getting. Then you can be aware if any extra unnecessary fees are being added to the transaction.
Or, a simpler way to save a lot more time and money is to choose a prepaid multi-currency Forex card like BookMyForex offers and pay in foreign currency. It also offers a Prepaid Forex Card for international students. You can also choose to pay in cash.
Whenever you have to spend money, do so in local currencies only, like the euro in France and the sterling pound in the UK.
Always keep in mind that some stores might not ask and consider your home currency as the default mode of payment. Make sure to check the transaction and look for hidden charges. DCC seemingly makes transactions “easy”, but it’s an avoidable expenditure.
You can use a forex card, credit card, or even a debit card abroad. However, with a credit or debit card, you’re still technically paying in INR; hence, a foreign transaction fee gets added on top.
Check your credit card issuer bank's charges in advance of your travel. In general, with credit cards, the foreign transaction fees are about 2 to 3% but can amount to as high as 6% of the total bill. Compared to the DCC charges, it will still save you some money.
With a forex card, you avoid both the foreign transaction fee and Dynamic Currency Conversion (DCC), since it’s preloaded with foreign currency. Prepaid travel cards don't let these conversion charges stack up.
Such forex or travel cards can be loaded with multiple currencies. They lock the exchange rate when you get them, so you do not have to worry about fluctuations in the future. Additional benefits of using these cards include reward points that you can spend elsewhere on your trip, such as hotel or flight bookings.
Paying in cash is also a great way to avoid the high conversion charges you encounter while making even small purchases.
You can opt to carry a mix of card and cash, or simply withdraw cash abroad using your card by paying a one-time fee.
The one-time charge of the ATM would be better than paying conversion fees multiple times, however small the transactions are. For example, when going to the local market, getting a souvenir of the trip or taking a cab, you can pay in cash.
Withdrawing a planned amount of cash beforehand can also make you aware of how much you are spending and help maintain a budget. Also, while withdrawing local currency from an ATM, choose to pay the fees in local currency as well, as many ATMs abroad can also apply Dynamic Currency Conversion (DCC).
It is wise to avoid Independent ATMs, kiosks or local guides at tourist spots due to the high chances of being scammed.
It might be possible that certain ATMs are not compatible with your card. Do your research and be aware of any global partners your home bank might have. These won't often charge cash withdrawal fees while you are abroad. At least not as high as local stores.
If you carry your home currency anywhere in a foreign country, you would have to eventually exchange it, making that currency redundant in that foreign economy. Exchanging INR in the USA, for example, would render the Indian currency redundant in the USA.
The INR currency notes you might have carried would be collected and transported in bulk back to India by certain financial institutions. This creates an unnecessary international transportation footprint in terms of fuel usage and carbon emissions.
On the other hand, if you carry US Dollars from India to travel in the USA, you would be using that currency where it belongs. It will simply circulate within the USA and does not need any external logistics journey.
Furthermore, exchanging INR to USD online before your international travel avoids future multiple conversions, which reduces paper waste from physical receipts as well as transport emissions if you had planned to visit forex shops or ATMs abroad.
Small conversion charges gradually add up to a high amount every time we pay when abroad. You can take a few essential measures to prevent this waste of money and have a budget-friendly international stay.
How is Using Local Currency Abroad Better for the Wallet and the Planet
1. Better for the Wallet
Foreign stores or retailers often offer you the choice to pay in home or local currency when using credit/debit or forex cards. If you choose to pay in home currency, you will use what is popularly known as, dynamic currency conversion (DCC) or cardholder-preferred currency (CPC).
This is entirely handled by the merchant wherever you are making the transaction, instead of your bank or your credit/forex card issuer.
1.1 Why Not Home Currency (Avoiding DCC charges)
DCC is the way how your home currency is immediately converted into whatever the local currency is at your point of payment. It sounds like an easy solution to the conversion hassles, but it can cost you much more in conversion charges.
The average conversion fee of DCC is easily 7-8% while the standard foreign transaction fee for using local currency through a credit card would be nearly 2%.
While this may seem little, these charges quickly add up, burdening your wallet unnecessarily.
The conversion rates in local shops or places that offer DCC are often very high since they set their own exchange rates. The same can be said about accommodation facilities, grocery stores and restaurants.
1.2 Countering DCC charges
These stores often use DCC as a way to earn more from foreign travelers, since it is generally non-transparent. The fees for this conversion might be hidden from the payer. There are chances that one may be succumbing to deception too, like the conversion fees being disguised as exchange rates.
A simple method of countering this is keeping track of real-time currency conversion rates before spending. Calculate the cost of the service or item you are getting. Then you can be aware if any extra unnecessary fees are being added to the transaction.
Or, a simpler way to save a lot more time and money is to choose a prepaid multi-currency Forex card like BookMyForex offers and pay in foreign currency. It also offers a Prepaid Forex Card for international students. You can also choose to pay in cash.
Whenever you have to spend money, do so in local currencies only, like the euro in France and the sterling pound in the UK.
Always keep in mind that some stores might not ask and consider your home currency as the default mode of payment. Make sure to check the transaction and look for hidden charges. DCC seemingly makes transactions “easy”, but it’s an avoidable expenditure.
1.3 Choosing Local Currency When Paying Via Cards
You can use a forex card, credit card, or even a debit card abroad. However, with a credit or debit card, you’re still technically paying in INR; hence, a foreign transaction fee gets added on top.
Check your credit card issuer bank's charges in advance of your travel. In general, with credit cards, the foreign transaction fees are about 2 to 3% but can amount to as high as 6% of the total bill. Compared to the DCC charges, it will still save you some money.
With a forex card, you avoid both the foreign transaction fee and Dynamic Currency Conversion (DCC), since it’s preloaded with foreign currency. Prepaid travel cards don't let these conversion charges stack up.
Such forex or travel cards can be loaded with multiple currencies. They lock the exchange rate when you get them, so you do not have to worry about fluctuations in the future. Additional benefits of using these cards include reward points that you can spend elsewhere on your trip, such as hotel or flight bookings.
1.4 Using Cash for Minor, Frequent Purchases
Paying in cash is also a great way to avoid the high conversion charges you encounter while making even small purchases.
You can opt to carry a mix of card and cash, or simply withdraw cash abroad using your card by paying a one-time fee.
The one-time charge of the ATM would be better than paying conversion fees multiple times, however small the transactions are. For example, when going to the local market, getting a souvenir of the trip or taking a cab, you can pay in cash.
Withdrawing a planned amount of cash beforehand can also make you aware of how much you are spending and help maintain a budget. Also, while withdrawing local currency from an ATM, choose to pay the fees in local currency as well, as many ATMs abroad can also apply Dynamic Currency Conversion (DCC).
It is wise to avoid Independent ATMs, kiosks or local guides at tourist spots due to the high chances of being scammed.
It might be possible that certain ATMs are not compatible with your card. Do your research and be aware of any global partners your home bank might have. These won't often charge cash withdrawal fees while you are abroad. At least not as high as local stores.
2. Better for Planet!
If you carry your home currency anywhere in a foreign country, you would have to eventually exchange it, making that currency redundant in that foreign economy. Exchanging INR in the USA, for example, would render the Indian currency redundant in the USA.
The INR currency notes you might have carried would be collected and transported in bulk back to India by certain financial institutions. This creates an unnecessary international transportation footprint in terms of fuel usage and carbon emissions.
On the other hand, if you carry US Dollars from India to travel in the USA, you would be using that currency where it belongs. It will simply circulate within the USA and does not need any external logistics journey.
Furthermore, exchanging INR to USD online before your international travel avoids future multiple conversions, which reduces paper waste from physical receipts as well as transport emissions if you had planned to visit forex shops or ATMs abroad.
Hence, exchanging home currency online before your flight, to the local currency of wherever you are travelling, has fewer logistical steps and is ultimately better for the planet! (Image source: Unsplash)
