Have you been a victim of dynamic currency conversion?

Have you noticed that a lot of overseas websites are now offering you the chance to buy your products in Aussie dollars rather than the local currency of the website? The same goes with overseas purchases at overseas stores, hotels or restaurants and ATMs when using your credit card while on holiday?

This is known as dynamic currency conversion. And if you’re not careful, it can mean that you are paying much more for your Nike’s, yum cha brunch or boutique hotel stay than you realise.

Dynamic currency conversion allows you to see how much you will be charged in Australian dollars by that particular merchant (at the time of the sale) but what you don’t know is that this exchange rate is generally less favourable than what your credit card provider will charge you. Plus, even though you’ve elected to pay in Australian dollars, because the merchant is based overseas your credit card provider may still charge you an overseas transaction fee on the purchase. Overseas transaction fees range from 0 – 5% of the purchase amount depending on your bank.

For example: You buy some perfume at Heathrow airport for 60 pounds. You are given the option to pay in pounds or AUD. In Australian dollars, the purchase will cost you $91.50. You opt to pay in AUD and your card is charged that amount. You get home to find that your credit card has been charged $91.50 but in addition you have a separate 3% overseas transaction fee. Had you opted to pay for the perfume in Pounds, your perfume would have been cheaper because the exchange rate used by your bank is likely to be lower, though you would still have to pay the overseas transaction fee.

It gets more complex because there is no standard approach to dynamic currency conversion. Some websites with dynamic currency pricing will just display the price in your home currency as an indication of the exchange rate but then charge your credit card in the local foreign currency. Other sites will charge your credit card in Australian dollars.

Dynamic currency conversion can be helpful when you are travelling and you’re unfamiliar with the local currency to work out just how much something will cost you (excluding bank fees) but the biggest drawback is the unfavourable exchange rates that are being charged.
The difference according to many real examples on wikipedia and travel forums like tripadvisor, fodors can be anywhere from 0.5% to over 4.00%.

The most constant piece of advice is that when asked to click or accept dynamic currency conversion: just say no!

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Have you been a victim of dynamic currency conversion? was last modified: February 14, 2013 by Kylie Moss

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