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DYNAMIC currency conversion or DCC is when an overseas credit card payment is converted to the cardholder’s own currency (pounds sterling) by the retailer.
While this may not sound so bad, it is actually far more expensive than paying in the local currency and being charged a conversion - or foreign currency - fee by the credit card issuer.
DCC costs around 4% and is often done without the customer knowing. As it’s the retailer who levies this 4% charge - it's in their interest to perform DCC.
Foreign currency fees charged by credit card issuers are usually around the standard 2.75% - just over half of a DCC charge. It is also possible to find credit cards that levy no fee on foreign currency purchases at all, including the Post Office credit cards.
You should remember that by law retailers should allow customers to choose whether or not they wish to pay for their card purchase in the local currency or their own currency.
If you ever encounter Dynamic Currency Conversion you should remember:
- DCC is often a much more expensive fee than paying the foreign currency fee to your credit card issuer.
- DCC may be operated in many places such as eateries, shops and hotels.
- It is your right to refuse DCC – don't be swayed by retailers telling you otherwise!
Make sure you keep your eye on transactions abroad
Because of the extra charges that can arise from dynamic currency conversion it is important that you keep an eye on transactions that you make whilst abroad, and check to see whether the payment you are making has been converted to pounds sterling rather than the currency of the destination in which you are making the purchase.
If the conversion has been made you should ask the retailer to void the transaction and charge again using the local currency rather than your home currency. This could help you to avoid costly charges associated with retailer adding their own conversion fee to your transaction. According to one report UK consumers are charged millions of pounds a year by retailers simply through having to pay these charges on dynamic currency conversion.
Dynamic currency conversion is operated in many countries, mostly throughout Europe but also in the United States. By converting the transaction to your own country's currency retailers often pocket up to 4%, which they apply as their own conversion charge, and if you are making a lot of transactions on your card whilst abroad you can imagine how quickly all of this can add up.
Although some cards will charge a foreign currency fee of their own for paying on credit card there is a standard rate of around 2.75% charged by most lenders, and some even offer fee-free use abroad, such as the Post Office.
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