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Dynamic currency conversion (DCC) allows you to make point-of-sale (POS) credit card purchases in a foreign country using the currency of your home country; it is also known as cardholder preferred currency (CPC). While DCC makes it easier to understand the price you are paying—and lets you avoid doing the currency conversion math—it often comes with a poor exchange rate and other fees that can make the transaction more expensive than if you simply made it in local currency.
If you've traveled abroad or shopped online on a foreign website, you're probably familiar with the fact that credit cards and ATMs charge a currency conversion fee for most transactions. Dynamic currency conversion (DCC) is simply one type of currency conversion fee.
Most currency conversion fees are levied by the credit card payment processor or ATM network. DCC fees are levied by the merchant, typically through a service provider.
DCC transactions sound attractive because the currency conversion takes place in real time at the point of sale. Regular credit card currency conversions don't reveal the cost until you go online or receive your statement in the mail.
Unfortunately, the apparent transparency that you get with DCC comes at a stiff price. First, the exchange rate will include a markup to the merchant and/or service provider, making the rate much less attractive than the market rate at the time. Second, there may be additional fees. And finally, you will still have to pay a foreign transaction fee to your card provider if it charges one.
Whenever you want to convert one type of currency into another there is usually a fee involved. When the conversion is done by a credit or debit card payment processor or an ATM network, the fee is usually 1% of the amount of the transaction. This conversion charge is often added to the processor's foreign transaction fee, raising the total cost to between 2% and 3%.
DCC is an optional service offered by foreign merchants at the point of sale that lets you see the cost of your purchase in your home currency, such as U.S. dollars. Unfortunately, DCC typically comes with a high currency conversion rate and additional fees that can make the transaction very expensive. One European study found exchange rate markups of from 2.6% to 12%. As DCC is optional, you have the right to decline it when offered.
If you agree to DCC when you make a purchase or withdrawal, that exchange will also be subject to any foreign transaction fee levied by your card issuer. This could result in fees of up to 7% or more.
DCC has advantages that some people may find helpful, but there are also downsides that could easily outweigh them.
Here are the details.
The convenience of dynamic currency conversion (DCC) typically is offset by a poor exchange rate and additional fees that make the transaction more expensive.
As DCC is almost always more expensive than regular credit card currency conversion, it makes sense to avoid it. Theoretically that should be easy, as DCC is an optional service and you have to opt in for it to take effect.
Your first line of defense is to "just say no." Decline DCC when it is offered. Keep in mind that the merchant will probably not call it DCC. Instead, you will be asked if you want the transaction in local currency or dollars. Choose local currency.
In addition to declining DCC, make sure the card you use does not charge a foreign transaction fee. (Many such cards are available.) That way the only fee you are likely to pay is the card's currency conversion fee.
If you're looking to exchange currency before you head abroad, a bank or credit union will usually offer you the most favorable exchange rates. In the destination country, you'll usually get the best deal by using a debit card at an ATM affiliated with your bank back home.
There are many exchange rate calculators available online or as apps. MasterCard and Visa, for example, both have calculators on their websites.
Generally speaking, credit cards provide more protection against fraudulent charges than debit cards, and they're also more likely to offer rewards like cash back. However, using a credit card at an ATM will often subject you to hefty cash advance fees. So it makes sense to pack both types of cards and use them at the appropriate places.
When you're traveling abroad it is almost always more economical to make credit card purchases in the local currency. Dynamic currency conversion, which allows you to make them in your home currency, may appear to be a convenience but often comes at an exorbitant cost.