Is It Best to Pay in Local Currency or US Dollars When Abroad?

Published by FareCompare on June 30, 2023

Whether you're a seasoned international traveler or a total newbie, one question tends to arise while preparing a trip: Is it best to pay in local currency or US dollars? It's not always intuitive which option is best for you and your wallet. If you make the wrong move, the mistake could cost you much more than you'd intended, putting a damper on your mood – and your budget.

If you're getting ready for an overseas trip and need to know what your best choices are regarding payment in local currency or US dollars, read on!

What is the best form of payment when travelling?

OK, the short answer is this: It's best to pay in local currency over US dollars when you're traveling abroad. Why? Because of a little something known as currency conversion fees. Essentially, these are fees on transactions made while you're away from your home country and operating in a currency other than what you typically use.

In the globalized world of today, banking is much more streamlined and seamless than ever before, but it doesn't mean that every transaction is equal. It's important to stay on top of what your credit card and bank charge for any operations made abroad. Reading the fine print and getting your questions answered is always the smartest choice!

So, what are currency conversion fees? When you use your credit card to charge something in another country — in another currency — at some point you will need to exchange that value back into US dollars. This could happen at the onset, or at the point of sale when you make the purchase, or once you are home, by your credit card company when it's time to pay your bill.

The difference between these two is important. If you convert the amount (from Euros to US dollars, let's say) immediately at the point of sale, the merchant will charge you what's called a Dynamic Currency Conversion (DCC) fee. This fee is in addition to any other foreign transaction fees that your credit card may charge you. Usually the DCC fee represents ~1% of the total transaction.

Not to mention, the exchange rate that you usually are charged at a point of sale is typically less advantageous than the one your credit card company will use. In fact, it's been shown that a difference of up to 12% might be charged on foreign transactions when the purchaser opts to convert to USD at the point of sale. Yikes!

Visa, Mastercard, and other large credit card networks can negotiate better exchange rates; save yourself the trouble and let them do the heavy lifting for you.

Remember this tip the next time you find yourself ready to use your credit card to pay for a lovely meal or buy something cool for your home while you're abroad. If you have the chance to pay in local currency or US dollars, always choose local currency! It's the best option and will give you peace of mind that you aren't getting taking advantage of.