The following is a guest article by Michael Challiner. Michael is a journalist specialising in Personal Finance topics.
Watch out for this latest legal scam from foreign restaurants, shops and Hotels. It's mainly being practised in Europe but no doubt it will catch on globally.
It's Called Dynamic Currency Conversion (DDC)
Going on holiday or business to Spain, France or Italy this year?
Many restaurateurs and retailers in these countries now have the facility to get you to authorise your bill in Euros but then they recharge your card in sterling. That sounds innocent but there's a sting in the tail. The retailers charge you an additional service fee of up to 4%! The system is called dynamic currency conversion (DCC).
- DCC guidelines from Visa say that UK card holders should be offered the option to either have their card charged in Euros or to have the transaction changed into sterling before it goes through
- It seems that in practice, few of us are being offered the alternative. Many retailers are charging us in sterling automatically - and with the extra 4% fee!
The language barrier might explain the lack of explanation but we are a little more cynical! Even where permission is sought, we doubt whether many restaurateurs or retailers will clearly spell out the additional service fee. After all it's an opportunity to make a bit more profit!
Our advice is that when abroad in euro-land always ensure that your transaction is processed in Euros. That's because some UK card operators such as Nationwide, Saga and Lombard Direct will convert Euros to sterling at no charge. Others, such as cards from our high street banks, will charge 2.75% as a foreign currency loading fee – but even that's less than the retailers' 4% DCC.
In fact even with a 2.75% foreign currency loading fee, it'll still be cheaper to use your credit card rather than converting sterling to Euros before leaving the UK or converting it abroad at the bureau de change.
That's because the exchange rates applied by Visa and Mastercard are often much better than you'd get for your cash and travellers cheques whilst abroad. And please don't be fooled by the commission free advertising outside the bureau de change. They might not charges commission but their currency rates are never cheap – after all, how else do they make a crust?
Summary
Credit cards are a real bonus for holiday makers but they have their downsides as well, sneaky DDC fees are an example of this. Of course another problem with using Credit Cards abroad is that you might not find that it's been used illegally until you get home. This is not a problem because unless your card was actually stolen the CC company will normally pick up the tab. But there might be major problems if the PIN has been used so watch out for key logging cameras at all Chip & PIN terminals.
However, it might be a good idea to keep tabs on your card either by logging into your account via the internet or phoning the card company every few days on their foreign freephone number.
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