Dynamic Currency Conversion

What Is Dynamic Currency Conversion?

Dynamic currency conversion fees, often called DCC fees, are fees that merchants charge on card payments to convert a foreign currency payment into their local currency.

When using your Visa or MasterCard overseas — whether withdrawing cash at an ATM or spending over-the-counter — you may often find yourself presented with the choice between paying in the local currency and your home currency. When you choose to pay in your home currency, you'll be charged a dynamic currency conversion fee by the merchant.

The catch here is that these fees can often be very exorbitant. According to our analysis, DCC fees can sometimes come to 10% or more of the value of the transaction!

This means that if you value saving money and dodging easily avoidable extra fees, then we'd strongly recommend that you choose to pay in the local currency wherever possible. This way, you'll avoid making a dynamic currency conversion altogether and only be charged a lower currency conversion or foreign transaction fee by your credit card operator.

Understanding Dynamic Currency Conversion

Dynamic currency conversion is a credit card feature that was introduced to offer convenience to customers. After all, if the cost of a foreign transaction is clearly displayed in one's home currency, it tends to be much easier to understand at first glance.

In practice, however, these DCC fees very often increase the price of the transaction quite substantially, often leaving the final price tag less favourable for the consumer. Take a look at the example of a dynamic currency conversion screen at an ATM in Denmark, for example:

In the above example, accepting to pay the dynamic currency conversion to Swiss franc would convert the Danish krone amount at a poor exchange rate (which is very often considerably poorer than the card's currency conversion fee that would be charged if the DCC were declined).

In essence, by charging to convert a foreign currency payment (CHF) to their home currency (DKK), the ATM merchant (in this case Euronet) is able to pocket a healthy profit merely for the convenience of displaying the cost upfront in customers' home currency.

How To Avoid Dynamic Currency Conversion

The answer is simple: choose to pay in the local currency wherever possible! Fortunately, DCC is optional, and you can always choose to decline it.

While it may seem disadvantageous not to see the final cost of your transaction upfront in your home currency (and only later receive it when the transaction reflects on your online banking), in a majority of cases you will save money by avoiding making a DCC and choosing to pay in the local currency.

Be aware that you don't need to be travelling abroad to encounter DCC fees. You can often find them when shopping online or even when making PayPal payments.

If you are travelling abroad, read this guide on the cheapest way to get cash abroad and check out the best travel cards like Wise Multi-Currency Card, Revolut, Monzo, and Monese. These cards & accounts operate across most of the globe and each offer foreign spending services far better than those on offer at the bank. Be sure to check out our reviews to discover whether these services might make sense for you for your next trip abroad.

Header photo by Eduardo Soares, distributed by Unsplash