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When shopping abroad, trying to convert pounds to euros, dollars or any other currency in your head can be tricky and frustrating. However, relying on ‘helpful’ shop vendors and chip and pin machines to convert your payment into sterling can leaving you paying more than you bargain for.
If you’re at an ATM, or in a shop or restaurant abroad, and you’re asked if you would like to pay in pounds or the local currency, the answer is almost always the same.
By choosing to pay in sterling, you risk getting a rotten exchange rate. This is due to something called ‘Dynamic Currency Conversion’. By paying in pounds sterling abroad, the conversion is handled not by your bank, but the local merchant. In short, they choose the exchange rate you receive.
Choose this option and you could end up paying between 6% and 10% more for your dinner. On small purchases this may seem like a minor inconvenience, but over the course of a week away this could soon add up. As a general rule of thumb, the advice is always pay in the local currency.
Without knowing this, there is always the temptation to choose to pay in a currency you know well. A 2017 report in The Mirror suggested that Brit’s paid over £633m more than they could have when paying by card abroad in 2016.
Generally, when paying in the local currency overseas, your own bank will use their own exchange rate, plus add on a small fee for the privilege. This can be anything from £1 to 3% of the transaction, a much better price to pay than letting the vendor choose your rate.
However, there are ways in which you can avoid paying any fees at all.
Specialist overseas credit and debit cards mean you can spend to your hearts content, knowing you are paying exactly what you think you are paying for your goods and services.
The Barclaycard Travelcard and Halifax Clarity are just two of the many major banks that offer credit cards with 0% commission or fees with purchases abroad. The exchange rate is usually calculated with the Mastercard or Visa rate at the time in the UK, giving you the most bang for your buck.
Another option now available utilises the growing phase of paying for purchases and managing your account through an app. Starling Bank is one of the few ‘mobile-only’ banks, and while you get a card to use for your purchases anywhere in the UK, your bank account and any outgoing or incoming transactions can be monitored through your phone.
Starling, like the two credit card providers above, doesn’t charge you a fee when using the card overseas. However, the advice still remains – if you are given the option, ensure you pay in the local currency, not pounds.
Of course, if you do opt for the charge-free credit option, paying it off each month is even more vital. Miss that monthly payment and the interest added will soon dwarf any overseas charges you may have faced with your normal debit card, deeming the effort made to switch pointless.
Money Saving Expert’s comparison of the various cards available to minimise your spend abroad is a great resource if you’re heading abroad in the coming weeks.
If you are indeed jetting off to a foreign land in the months ahead, you should also make sure your’re well prepared with your insurance. Use our quick quote system to get an instant price for your Sports Travel Insurance today.