When you buy something abroad, your credit card company may ask whether you’d like to be charged in USD, instead of the local currency. This service, called dynamic currency conversion, is convenient, but it comes at a price. 카드깡
NerdWallet compared currency exchange rates between Mastercard and Visa, and found Mastercard to be cheaper on many currencies. But what is the best way to get the best rate?
1. No foreign transaction fees
If you’ve ever traveled overseas, used a credit card in another country or made an online purchase from abroad, you’ve likely been charged a foreign transaction fee. These fees are typically around 3% of the total amount, and can be a big surprise when you get your statement at home. If you’re a frequent traveler, or even just someone who takes 1 large trip a year, these charges can add up. Fortunately, you can avoid them by selecting a credit card that doesn’t charge these fees.
Many credit cards offer the option of choosing whether you’re charged in local currency or US dollars. If you choose to be charged in US dollars, the merchant will then use a currency conversion service (often called dynamic currency conversion) to determine the price of your purchase. This can result in a very poor exchange rate, which is why it’s important to select a credit card that doesn’t charge any foreign transaction fees.
When you select a card with no foreign transaction fees, your credit card issuer will convert your purchase into USD for you at the point of sale. In addition, the card network’s currency conversion rates are often much more favorable than merchant DCC rates, making credit cards the best choice for currency conversion.
To test out this claim, we compared the currency conversion rates provided by Mastercard and Visa with Oanda’s interbank exchange rates for euros on various dates. We found that the card networks’ rates were nearly identical to Oanda’s, and significantly better than merchant DCC rates.
Keep in mind, however, that some card issuesrs (like Chase or Bank of America) don’t charge any foreign transaction fees with their cards. They also tend to have their own payment network, whereas others (like Amex or Discover) partner with one of the larger card networks like Mastercard and Visa. In these cases, you may still pay foreign transaction fees if your card issuer doesn’t charge them. It’s important to carefully read your cardholder agreement and understand all the terms and conditions governing your credit card, including how your foreign transaction fees are calculated.
2. No markup
Many foreign merchants offer a service called dynamic currency conversion (DCC) that allows you to pay in your home currency, such as U.S. dollars, when you use your credit or debit card. This sounds convenient, since you know exactly how much your purchase will cost in your home currency in real time at the point of sale. However, this convenience comes at a price: DCC prices typically include an exchange rate markup and other fees for the merchant and/or service provider, plus any foreign transaction fee your credit card charges.
When you choose to pay in your home currency with DCC, you also lose out on any rewards that may be available if you paid in local currency with your card. The DCC rates are set by the payment networks that facilitate cross-country payments, such as Visa and Mastercard. NerdWallet has compared the DCC exchange rates to wholesale market exchange rates and found that they are often much higher than those rates.
A common misconception is that a DCC markup is the same as a foreign transaction fee, but that’s not true. DCC marksups are the difference between what a merchant actually pays and the wholesale exchange rate that they’re offered by their card network, not an extra fee that the merchant adds on to your purchase. If you see a DCC charge on your card statement, contact your card issuer to ask to dispute it. They should be able to resolve the situation quickly and fairly. If they are unable to resolve the matter, you can also contact your card network to file a complaint.
3. No hidden fees
If a merchant offers to let you pay in USD instead of local currency, that's often a sign that they're charging an extra fee for dynamic currency conversion (DCC). The rate used is determined by the card network—like Visa or MasterCard—and usually has a small markup on the market rate. You won't know the precise amount charged until you see your credit card statement a day or two later—and you might be surprised at how much you paid. To avoid this, always charge in the local currency and let your card issuer do the DCC, so you benefit from their negotiated exchange rate.
NerdWallet recently tested DCC rates for 40 currencies and found that, all else being equal, MasterCard offered better exchange rates than Visa did. Fortunately, most cards don't have DCC fees, and many offer great (or no) international transaction fees. If you do end up paying a DCC fee, contact your card issuer's customer service to report the transaction.
4. Convenience
Sometimes when you swipe your credit card abroad, the merchant will ask whether you would like to pay in local or home currency. That is called dynamic currency conversion (DCC), and while it sounds nice to know the exact price you'll be paying in your own currency at that moment, this added convenience usually comes at a steep cost. It's a service offered by your bank or the credit card network to give you peace of mind, and it is almost always accompanied by a large markup that is built into the price of the item or service that you are purchasing.
Instead, stick to paying in the local currency and let your card issuer do the exchange for you – it's usually much cheaper. It's also a good idea to learn about the exchange rates used by your credit card provider, as it could save you money in the long run.
In a recent NerdWallet analysis, we found that, on average, MasterCard offered better exchange rates than Visa for the most popular currencies. However, there was no clear winner overall as the differences were often small.
You can get a feel for how competitively priced credit cards offer their exchange rates by comparing them to the exchange rates offered at currency kiosks and hotels, where you'll likely find they are more expensive. That's why it is important to know about your credit card's exchange rate before traveling overseas — and to keep an eye out for hidden fees like foreign transaction fees. By doing your research, you can avoid overpaying when using a credit card abroad and save money on the inflated DCC rates that many businesses charge as a profit-making service.