Spending abroad with your card: always pay in the local currency

You have finished dinner in Tokyo, the waiter brings the card machine, and the screen asks a question: pay ¥12,000, or pay €79.09? It looks like a kindness. You know what euros are worth, and the machine has done the maths for you.

It is not a kindness. It is one of the most reliable ways to lose money on holiday, and it happens millions of times a day at tills, hotel desks and cash machines all over the world. This guide explains what is going on, what it costs, and the handful of habits that make spending abroad as cheap as spending at home.

The question at the terminal

The offer to pay in your home currency has a name: dynamic currency conversion, or DCC. When you accept it, the conversion is done by the shop's payment provider, not by your card issuer. The provider sets its own exchange rate, typically 3% to 8% worse than the mid-market rate, and shares part of the margin with the shop. That is why staff sometimes press the euro button for you.

When you choose the local currency instead, your card issuer does the conversion. With Pocket, that means the mid-market rate. If you already hold yen in your Pocket account, nothing is converted at all, and the payment simply comes out of your yen balance.

The rule is short enough to remember on any trip:

Always pay in the currency of the country you are in. If a screen offers you your home currency, say no.

If the choice is not offered and the receipt shows your home currency, you can ask for the payment to be cancelled and run again in the local currency. You are entitled to refuse the conversion.

What it costs

Here is a modest week in Japan with a euro account, at a mid-market rate of 162.35 yen to the euro, with a 7% mark-up on card payments and 8% at the cash machine, both typical of what we see.

That is more than €60, or a good dinner for two, spent on nothing but saying yes to the wrong button. The conversion is the same transaction either way. The only difference is who sets the rate.

Cash machines

Cash machines abroad have two ways of charging you, and they often use both.

The first is DCC again, asked as "Do you want us to convert this withdrawal?" or "Accept the guaranteed rate?". The answer is still no. Choose to be charged in the local currency and let your card do the conversion.

The second is an operator fee, a flat charge set by whoever owns the machine. It should be shown on screen before you confirm. You cannot avoid it at every machine, but you can keep it down:

• Use machines belonging to banks, ideally inside a branch, rather than standalone machines in airports, bars and tourist streets.

• Take out more, less often. One withdrawal of ¥30,000 costs less than three of ¥10,000 when each carries a flat fee.

• Know your allowance. Every Pocket plan includes fee-free withdrawals up to a monthly limit that depends on your plan, and the app shows how much you have left before you reach the machine.

• Ask whether you need cash at all. In most cities, card and phone payments work almost everywhere. Keep a little cash for markets and small cafés, not the whole trip.

Before you go

A few minutes before the trip saves most of the trouble during it:

• Top up the currency in advance if you know roughly what you will spend. Convert when the rate is good, and set a rate alert if you are a few weeks out.

• Turn on payment notifications. You see every payment within seconds, in both currencies, so a wrong charge stands out straight away.

• Use a virtual card for deposits. Hotels and car hire firms take a deposit and charge the final amount days later. A virtual card keeps your main card number out of their systems.

• Add your card to your phone wallet. If your physical card is lost or stolen, you can freeze it and keep paying with your phone.

• Carry a second way to pay, kept separately from the first.

There is no need to tell Pocket you are travelling. Our fraud checks learn from the app where you are and adjust on their own.

If something goes wrong

Freeze your card from the app the moment you cannot find it. Freezing is instant and reversible, so it is worth doing even if the card turns up in your other jacket an hour later. If you spot a payment you do not recognise, tap it and choose "I don't recognise this", and we will take it from there.

Spending abroad is cheap when the conversion is fair. If you are also sending money home or to someone abroad, our guide to avoiding hidden exchange-rate mark-ups covers the same trap on transfers. You can compare what each card plan includes, from Standard to Metal, on the cards page.