Is It Better to Pay in Euros or Dollars on Credit Card?

When making international credit card purchases, deciding whether to pay in local currency or U.S. dollars impacts your final cost. Understanding currency conversion is key to managing expenses.

Understanding Currency Conversion Options

The first option processes the transaction in the local currency, such as Euros. Your credit card issuer (e.g., Visa, Mastercard) performs the conversion. The exchange rate is typically the interbank rate plus a small network markup.

The second option is Dynamic Currency Conversion (DCC), where the merchant or their payment processor converts the transaction to U.S. dollars at the point of sale. With DCC, you see and pay the amount in your home currency immediately. The merchant or their processor determines this exchange rate.

Costs Associated with International Transactions

While Dynamic Currency Conversion might seem convenient by displaying the cost in U.S. dollars upfront, it typically comes with significant additional costs. Merchants or their payment processors apply their own exchange rate, often including a substantial markup (3% to 10% or more) on top of the interbank rate. This convenience can obscure less favorable rates.

Foreign transaction fees are charges levied by your credit card issuer for purchases made in a foreign currency, typically ranging from 1% to 3% of the total. These fees apply even when paying in local currency, as the transaction is still processed internationally. Review your cardholder agreement for details.

The combination of foreign transaction fees (if applicable) and your card network’s exchange rate is almost always more favorable than DCC. DCC markups are generally higher and less transparent than card issuer fees.

Choosing the Right Payment Strategy

Always choose to pay in the local currency for international credit card payments. For example, in Europe, select Euros over U.S. dollars. This ensures your credit card issuer processes the conversion, typically at a more favorable exchange rate closer to the wholesale interbank rate.

At a payment terminal or online, look for “pay in local currency” or “pay in EUR,” and decline any USD option. Foreign transaction fees may still apply from your card issuer. For optimal savings, consider a credit card that waives these fees, as many travel cards do. Apply the same principle to online shopping with international retailers: always select the merchant’s local currency.

Preparing for International Payments

Before international travel or online foreign purchases, review your credit card terms for foreign transaction fees. Many travel-focused cards offer no foreign transaction fees, leading to significant savings.

Notify your bank or credit card issuer of your travel plans before you depart. This helps prevent transactions from being flagged as suspicious and declined, ensuring uninterrupted access to funds.

Despite credit card convenience, having local currency cash or knowing how to access it is important. This provides a backup for situations where cards are not accepted or for smaller purchases. ATM withdrawals with a no-foreign-ATM-fee debit card can be cost-effective.