Should I pay in the local currency when I’m away?

If you’re away in Europe and you’ve just finished your meal in a restaurant or you’re picking up some souvenirs from the gift shop, you might decide to pay for it on your debit or credit card.

When you’re doing this, the machine could ask you if you want to pay in pounds or euros. Is there a difference though, if you’re still going to get charged either way? Are you definitely better off with one or the other? Let’s take a look at what you should do.

The cost of pounds

Using your debit or credit card to pay in pounds when you’re in Europe is known as ‘dynamic currency exchange’. This means that the restaurant or shop’s foreign bank will do the exchange for you. In some cases you may be promised that there is 0% commission on the transaction. The problem here is the underlying exchange rate (which they are unlikely to tell you). If the exchange rate they use is poor, the transaction could be very bad value for money.

In some cases, as well as a poor exchange rate the foreign banks may also add an extra fee or commission to the transaction too making it even worse value for money. So stay clear of paying in sterling when in Europe!

Local currency

Paying in the local currency using your credit or debit card is usually the way to go when you’re shopping abroad. The underlying exchange rate will be that used by VISA or MasterCard for the day the transaction is processed – which will be about as good as you can get as they exchange millions of pounds and euros every day.

On top of this you may be charged by your bank or card provider. For example thinkmoney charges 2% for overseas card purchases or ATM withdrawals – but this should still be cheaper than paying in sterling. However, with a bit of planning ahead you can avoid this charge too – by using a prepaid travel card.

Using a prepaid travel card

Another option is to use a prepaid travel card when you shop abroad. With a prepaid travel card, you load your spending money on it before you go.

Typically, you can use these cards to pay for your meals in restaurants or any shopping while you're away without incurring additional charges. You'll also be able to use it to withdraw cash from ATMs and unless the cash machine has any extra fees, you won't be charged for this.

A prepaid travel card can help you stick to a budget while you're away, as you can't spend more than you've loaded onto them. However, if you need to, you should be able to top up your prepaid card while you are away. Many cards allow you to top them up over the internet but it’s best to check this before you go.

Be aware there are some places that may not accept these cards such as car hire companies. If you plan on hiring a car, you might want to take a debit or credit card as backup.