Seeing the world is fun, except when it comes time to pay for something. Then, if not paying in cash, you will usually have two decisions to make: (1) whether to pay in the local currency or have the merchant charge you in your home currency (like US dollars), and (2) what card to use. The choices you make can have a significant impact on what you end up paying.

To save the most money, the consensus, among travel enthusiasts, seems to be that you should pay as follows:

1. Pay With A Credit Card With No Foreign Transaction Fees

I learned this the hard way when I ran up around $50 in foreign transaction fees during a trip to the Greek Islands. Credit cards companies can charge you such fees in the 3% range. This can add up, and is a waste of money. Therefore, you should always make sure to pay with a card that has no foreign transaction fees. You can find good lists of such cards here and here.

2. Avoid the Dreaded Dynamic Currency Conversion by Paying in the Local Currency

Do not fall for a trick known as dynamic currency conversion. That is where the merchant will let you pay in your home currency. For example, let’s say you’re in Hong Kong and buying some jade figurines (as I’ve been know to do – for some reason figurines are my favorite travel souvenir). When you’re about to pay, the seller might say “the price, in US dollars, is $10”. At that point, you can either pay $10, or pay the price in the local currency – Hong Kong Dollars.

So, you might think, “why not make it easy on myself and pay in US dollars, rather than bothering with exchange rates”?

The problem is that the merchant won’t usually give you the best exchange rate, or even the prevailing market rate. Rather, he’ll convert the local currency to your home currency using an unfavorable exchange rate that makes him money. Therefore, and as noted by The Points Guy, always insist on paying in the local currency, and let your credit card company exchange it to your home currency.

3. Pay with A MasterCard

While you can use a VISA, American Express, or other card if you don’t have a MasterCard, there is a consensus among travel bloggers that MasterCard generally gives you better exchange rates. For example, Million Mile Secrets did a great analysis where it compared VISA, MasterCard, Discover, and American Express, and found that MasterCard gave the best rate. In their example, $25 Canadian dollars converted to US dollars as follows:

VISA: $19.28

American Express: $19.22

Discover: $19.17

MasterCard: $19.14 

It’s not a huge difference, but why leave money on the table?

Bottom Line

In sum, to get the most out of your money when paying abroad, remember those three rules: pay (1) in the local currency, (2) with a credit card with no foreign transaction fees that (3) is a MasterCard.

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What do you think about dynamic currency conversion, MasterCard, and paying with a credit card with no foreign transaction fees?