Do you know that when you are traveling abroad, you get ripped off by the local vendors (via their banks)? Yes, that is true. Read on to find out how you get ripped off with Currency Conversion During Travel and how to avoid it and save some cash!
During one of my recent trips to Spain, I was asked, when paying for the car rental, if I wanted to pay in GBP or in Euros. I did not know. So I asked the person which would better. Without skipping a beat, the person told me that I may get a better rate if I paid in the currency of the card. So I selected GBP on the card machine, made the payment and thought nothing about it until I got back.
On my statement, I saw an amount for the rental in GBP which looked slightly more than I would have expected. Now typically I would not have noticed this. I am not nuanced enough in international currencies and exchange rates to notice differences or discrepancies. But in this case, luckily, the charge for exactly 100 Euros and I would have expected something like £90 charged for the 100 Euros. But the charge was for £98 which did not look right. I knew that GBP was much higher than the Euro.
So I checked the currency exchange rate on Oanda and as I had suspected, it showed me I should have been charged £90.40 for 100 Euros. But here I was looking at an £8 overcharge.
So I called up the merchant in Spain and asked them why I was charged more. After a long time on the phone back and forth and two managers later, it was revealed that although they had charged 100 Euros on the card machine (which I had seen and approved by entering my pin), the bank/merchant account may have charged a commission for converting the currency from Euros into GBP while charging!
This fact blew my mind!
I became fascinated with this issue and printed out a bunch of statements from my two previous trips to see what the true story is.
Right off the bat, a transaction caught my eye – this was an ATM withdrawal I made in Alicante for 200 Euros. When I was withdrawing the money, the machine asked me if I wanted to be charged in GBP or Euros and the whole wording made it look like being charged in GBP was somehow beneficial to me since it was the currency of the card and the bank that issued it back home. To my horror, I was charged £194.50 for the 200 Euros that I withdrew. A quick check on Oanda revealed I should have been charged £180.80. That is almost £14 overcharge!
Oh My God! This was insane! I felt like a hole opened up in front of me and swallowed me up!
So some research revealed the following:
It’s a scam that goes by the name of Dynamic Currency Conversion (DCC). DCC means you effectively ask a foreign ATM provider or bank to gleefully make up an exchange rate for you. And the only thing more likely to screw you over than your bank is a foreign bank.
so how to avoid this scam and save your money?
Make sure ALWAYS select the local currency for your charges. Even for the ATM withdrawals. If you are in Europe (EU) always select Euros. In the UK always select GBP. In the USA always select USD. In India always select Rupees. You get the idea.
When you select the local currency you will be charged closer to what is called as the Mid-market exchange rates which are rates derived from the mid-point between the “buy” and “sell” transactional rates from global currency markets. A mid-market rate indicates the value of a currency that is not weighted towards buying or selling.
Transactional (“Buy” and “sell”) rates include overheads and profit margins that are independently set by foreign exchange providers; their rates can vary a lot and will differ from the mid-market rate.
Even when you are sending or receiving money from other countries, you end up losing a lot of money due to hidden commissions levied on top of the exchange rate by intermediary banks.
For example, if you sent £1,000 to a friend in France and the mid-market rate was £1 = €1.43, then your friend would expect to receive €1,430. However, the bank would use a trumped-up rate such as £1 = €1.37 which would mean your friend gets only €1,370. A €60 loss!!
The same tactics are used by currency exchange companies in airports such as Travelex which recently charged me more GBP for Euros! I have vowed never to use Travelex again in my life as I had experienced this kind of a rip off twice at the Heathrow airport!
People still have this tendency that they need to take the local currency of their destination during travel. And they do this at the airport. You do not have to. You are better off withdrawing cash out of the ATM once you land in the foreign country. Your bank may charge you a small fee for the cash withdrawal but that would be nowhere near the loss you would incur by exchanging currency at the airport of your departure.
Of course, I am not a financial consultant and this should not be considered as financial advice. I suggest you find out how much your bank would charge you for cash withdrawal in a foreign country. Then find out the rate at the exchange counter in the airport and compare that with the mid-market rate on Google or Yahoo finance or Oanda. If the exchange counter if offering you the mid-market rate, then go ahead and exchange your currency.
Do you have any similar rip off of currency conversion during travel stories? If so, please do share them by leaving a comment below so others can become aware.
Banks have been ripping us off in many ways and we need to educate ourselves on how to avoid such scams. And when you are traveling it is more important that you know how you are being scammed, even by international 5-star hotels, when it comes to currency exchange.