One of the most intimidating aspects of international travel is trying to figure out just how to convert your native currency to the local currency.
Ideally, you want to use your credit or debit card for purchases when traveling in a foreign country. It’s an easier process to simply swipe your card as opposed to carrying cash and then having to exchange it for the local currency.
Also, if your debit/credit card is lost or stolen it’s a simple process to cancel your card and have fraudulent charges reversed.
You can also save money if you have a good travel credit card that has no foreign transaction fees.
However, using a credit or debit card is not always possible when traveling. If you want to buy food from street vendors or shop at local markets you will need to have some cash on hand.
I can clearly remember my first time trying to withdraw cash from an ATM in a new country. I stood there for several minutes, embarrassed as the line began to form behind me.
There I am trying to figure out the exchange rate and being confused by the ATM asking me to choose… “withdrawal with conversion or withdrawal without the conversion”. I finally decided to step out of the line and do some googling to try and figure out just what the heck I was doing.
Do Not Accept Conversion from ATMs
Let’s start with the most important piece of information you will need to know when withdrawing cash from a foreign ATM. I lead with this because ATM’s offering to “convert your currency” is an extremely misleading and unethical practice in my opinion.
When withdrawing cash from a foreign ATM there are two fees you will be charged in addition to the normal ATM withdrawal fee. You will be charged a foreign transaction fee and a currency conversion fee.
What is a foreign transaction fee?
A foreign transaction fee is a fee that is charged by your bank when you make a withdrawal from an ATM or use your debit card to make a purchase in a foreign country. This charge is usually between 2% and 3% of the transaction’s total.
What is a currency conversion fee?
When you withdraw cash in a foreign currency ( from an ATM or when you use your debit card for a point of sale purchase) your bank has to convert the amount to your home currency.
There is a conversion fee of around 1% for this but most banks and credit card companies will combine the conversion fee with the transaction fee. You will only see one single charge listed on your statement as a “foreign transaction fee”.
How are some ATMs deceiving foreign travelers?
This is how a lot of international banks are targeting unsuspecting travelers at ATMs to pocket extra money.
When using an ATM with a foreign debit card a screen will pop up that looks something like this:
What does it mean when an ATM asks you to accept a withdrawal with conversion?
This ATM is trying to encourage you to accept your withdrawal under the terms that they will do the conversion for you instead of your bank. The technical term for this process is called dynamic currency conversion. Otherwise known as DCC. It appears to be the more convenient option but it most certainly is not.
The reason this ATM wants to do the conversion instead of your own personal bank is so that they can overcharge you for the exchange rate and keep the difference. Depending on how much they inflate the cost you could end up paying up to double the amount of your withdrawal under the guise of “conversion fees”.
Here is an example of how it normally works when you do not accept this offer and let your own bank do the conversion:
Example: Without Conversion
In this example lets assume that your home currency is the U.S dollar and you want to withdraw 100 euros:
Withdraw 100 Euros from the ATM → Your bank converts to U.S dollars using the current exchange rate (1us=1.20euros) $120 → Your bank charges a 3% foreign transaction fee of $3.60
In this example, you will receive the 100 euros and your bank statement will reflect an ATM withdrawal of $120. You will also see the second transaction of $3.66 for a foreign transaction fee.
However, this is what can happen when you click “accept with conversion” and allow one of these ATM’s to convert the exchange rate:
Example: With Conversion
Withdraw 100 Euros from the ATM →ATM converts to U.S dollars with an inflated exchange rate (1us-1.60euros) $160 → Your bank charges a 3% foreign transaction fee of $4.80
In this example, the actual exchange rate is 1 dollar to 1.20 euros but they have charged 40 dollars over the current exchange rate. This is money that they keep.
You will still likely get charged by your bank because if you remember, the foreign transaction fee and conversion rate are combined into one flat fee. So you have now paid an extra $40 to this ATM for absolutely nothing!
What’s really disturbing are the tactics used to make this option seem appealing. By using slick wording such as “no guarantee of exchange rate” when you don’t accept and if you do accept we can “guarantee you a fixed rate.”
Some of these ATMs will even give you another prompt after you decline as if to give you another chance. This happened to me in one particular country several times until I figured out that I could just decline the option on the second screen as well.
This can be very confusing especially for a new traveler. When you see this message, you might be tempted to accept because it appears to be a better option, but in the end, you will lose money.
Imagine how much money you could potentially waste while on vacation by withdrawing money several times using this option?
In addition to ATM withdrawals, you will see this option often when making a point of sale purchase using your debit or credit card in restaurants and shops.
In this instance, after swiping or inserting your card you will have the option of either paying in your native currency or the local currency.
If you select the option to pay in your currency this will activate the dynamic currency conversion and you will be overcharged.
This is quite deceiving because when you see the choice of either paying with your native currency or the local currency, instinctually you will click on what’s familiar. This is what they depend on.
Always pay in the local currency of the country that you are in. You can also download the XE currency converter app to your phone. This way you will know the current exchange rate and be informed to make better choices when spending your money.
You should also try whenever possible not to withdraw money from freestanding ATMs that you find outside, especially in touristy locations. Always withdraw your money from an ATM that is attached to, or located inside the bank.