If you’re like most Canadian families, you’re probably planning a summer getaway. While you probably know you should phone your issuer ahead of time, but have you given much thought to foreign exchange fees? Whether you’re traveling to the United States or Europe, it’s important to ask about foreign exchange fees, as they can really add up.
Paying in Your Home Currency vs. the Local Currency
When you’re travelling abroad, you’ll probably make the wise decision of using your credit card. While you could use cash, who wants to risk carrying around hundreds of dollars in a foreign country?
When paying by credit card outside Canada, a common question you’ll be asked is whether you’d like to make your purchase in Canadian dollars or the local currency (U.S. dollar, Euro, Pound, Yen, etc.). If you’re like most travellers on vacation, foreign exchange rates are the last thing on your mind. However, how you respond can have a big impact on how much you pay. Let’s take a look at the advantages and disadvantages of paying in your home currency vs. the local currency.
Your Home Currency (Canada Dollars)
The main advantage of paying in Canadian dollars is that you’ll know exactly what the charge will be. You won’t have to wait until you receive your credit card statement in the mail to know how much that souvenir is going to cost you. Paying in your home currency is also useful if you decide to return an item; you’ll be refunded the exact same amount (not a lower amount).
Although paying in your home currency has its advantages, there are times when it can end up costing you a lot more. When you decide to pay in your home currency, you’re agreeing to allow retailer to do the currency conversion for you. What are the risks of that? The retailer could give you a poor exchange rate or could make you pay extra costly fees!
The Local Currency
When you decide to pay in the local currency (U.S. dollars, Euro, Pound, Yen, etc.), instead of letting the foreign retailer do the currency conversion, your credit card issuer does it. The biggest advantage of this is you’ll know exactly what the foreign exchange fees are (if you take the time to review your credit card agreement). The majority of issuers add a foreign currency conversion markup of 2.5 per cent when you swipe your credit card outside Canada.
Let’s say you’re dining out at a fancy restaurant while on vacation in the Great Britain. You decide to tip the waiter and the total for your meal comes to an even £100. Based on the currency rate for August 12, 1 British Pound equals 1.84 Canadian Dollars. That means your meal will cost you $184.08, but we’re not finished yet – you’re forgetting about the extra 2.5 per cent. The foreign currency conversion charge will add another $4.60 to your purchase for a grand total of $188.68.
The markup may not seem like much, but it can really add up, especially if you’re spending hundreds while on vacation. If you travel abroad often, there are some credit cards that charge a lower foreign exchange fee – or no fee at all.
Despite the markup, the biggest reason to pay in the local currency is that you’ll know exactly what the foreign fees are ahead of time. Canadian credit card issuers are required to disclose their charges in your credit card agreement.
Paying in the local currency can be a disadvantage if you decide to return an item. For example , if you purchase a sweater, but decide it’s too small, the amount you’re refunded may be different from the amount of your original purchase. That’s because the exchange rate may have changed from the day you make the purchase.
The Bottom Line
At the end of the day it’s up to you if you’d prefer to pay in the home currency or the local currency. Unless you trust foreign retailers with currency conversion, you’re probably better off paying in the local currency, as you’ll know exactly what the fees add up to ahead of time.
