Q: On trips to Italy and Spain last year, a hotel in each country asked me whether I would like my bill charged in dollars or euros. I had not been to Europe for a while, and I had never been asked this. I didn’t know what to say, so I went one way at one hotel and the other way at the other. Does it matter which currency I choose? Do I have to know what the rate of exchange is for that day to give an intelligent answer? I have a credit card with no foreign transaction fees. Would it matter if I did not?
Manhattan Beach, California
A: Bisceglia — and millions of others, including me and probably you too — has stumbled onto one of the newer ways to part tourists from their money. And guess what? It’s mostly legal.
The practice is called “dynamic currency conversion,” and it is not your friend. It works this way: You go to pay your dinner check in, say, France. The merchant asks whether you would like to pay in euros or dollars.
“How thoughtful,” you think, “Someone is trying to help me overcome my conversion aversion and tell me in U.S. dollars how much I owe.”
The merchant isn’t helping you overcome your math problem; he’s helping himself to a few extra of your dollars. He’s banking on the fact that you don’t know what the exchange rate is. If you did, you would see that the dollar exchange rate you’re getting probably is lousy. Guess who gets the difference between the real rate and what you’re paying? Hint: Not you. And, by the way, the merchant is supposed to ask you whether you want this conversion done.
The answer to Bisceglia’s first question — does it matter which currency I choose? — is yes, it does. The currency you should choose when you’re in a foreign country generally is the currency of the country you’re visiting, whether it’s euros, pounds, pesos or whatever.
The answer to Bisceglia’s second question — do I have to know what the rate of exchange is for that day to give an intelligent answer? — is no, you don’t have to know the rate to give an intelligent answer. All you must know is that if you choose U.S. dollars, you’re probably going to get hosed.
How can merchants justify this practice? Kevin Yuann, director of credit cards for NerdWallet, a personal finance website, explains that expressing a total in U.S. dollars is painted as a “convenience” for the traveler.
He’s not defending the practice, mind you; in fact, he has run afoul of it.
To Bisceglia’s third question — would it have mattered if I was using a credit card that doesn’t charge a foreign transaction fee? — the answer is not really. The dynamic currency conversion fee is separate from a foreign transaction fee, which can add as much as 3% to your bills.