Card Payments and Withdrawals When Traveling: Which Currency Should I Choose?

Using your card to pay while traveling can quickly become expensive. There are two main factors that together make up most of the cost: Foreign transaction fees and unfavorable currency exchange rates. But dynamic currency conversion is another pitfall that can quickly add a major cost to paying with credit and debit cards.

This moneyland.ch guide explains what you should do when asked whether you want to pay in Swiss francs or in the local currency.

What is dynamic currency conversion?

Many consumers are not familiar with this term, but most have experienced dynamic currency conversion in real-world situations. If you have used credit cards or debit cards to pay or make cash withdrawals while traveling, you will most likely have been asked whether you want to pay in Swiss francs.

If you choose to pay in Swiss francs, then the payment is converted from the local currency into Swiss francs first before being charged to your card. You are shown the amount to be charged in Swiss francs. The service that enables this is called dynamic currency conversion.

Dynamic currency conversion is convenient, as you can track your spending in Swiss francs, instead of a local currency that you may not be familiar with. But that convenience comes at a high price because dynamic currency conversion typically uses very unfavorable currency exchange rates. In the most extreme cases, you may pay markups of up to 10 percent.

What are the added costs of paying in the local currency?

When you pay for purchases in the local currency, your credit card issuer or bank handles the currency conversion for you using its own currency exchange rates.

With most Swiss credit cards and debit cards, the currency exchange rate markups added to interbank rates for changing francs into euros range between one and three percent. Markups can be much higher for other currencies. Some banks and neobanks like Bank WIR, Wise, and Yuh, use exchange rates that are much more favorable than average rates, with markups for franc-to-euro exchanges typically being around 0.1 percent.

Most cards – including those from some affordable service providers like Wise and Yuh – also have an additional foreign transaction fee which applies on top of the currency exchange markup.

Example of a payment in the local currency: Making a 1000-euro payment using a typical Swiss credit card would generate between around 25 and 50 francs of card fees – accounting for foreign transaction fees and currency exchange markups. Making the same payment using the most affordable cards would only generate costs of around one franc.

What are the added costs of paying in Swiss francs?

If you choose to charge your card in Swiss francs when making a card-based payment or cash withdrawal, the currency conversion is handled by a foreign service provider instead of by your bank or issuer. The foreign dynamic currency conversion service provider uses its own currency exchange rates. In most cases, the rates are very unfavorable compared to those used by Swiss banks and credit card issuers. Currency exchange markups of 10 percent or more above interbank rates are not uncommon.

In many cases, the dynamic currency conversion service provider pays the store a commission every time a customer uses this service. That creates an incentive for stores to encourage customers to pay in Swiss francs (or whichever currency their card is denominated in). The interfaces of many ATMs are also designed in a way that encourages you to choose the option of being charged in Swiss francs.

Important: Nearly all Swiss credit card issuers always charge foreign transaction fees for purchases from foreign merchants, regardless of whether the transaction is charged in Swiss francs or the local currency. Some banks and neobanks, on the other hand, do not charge foreign transaction fees for transactions in Swiss francs.

Example of a payment in Swiss francs: Making a 1000-euro payment using a typical Swiss credit card using dynamic currency conversion would generate between around 120 and 150 francs of card fees. Even if you were to use one of the cards with the lowest fees for foreign transactions, you would still pay around 95 francs in fees. So paying in Swiss francs would be much more expensive compared to making the same payment in the local currency (euros).

Is there an alternative that gives me the same advantages as dynamic currency conversion?

The advantage of dynamic currency conversion – namely being able to see how much you will be charged in Swiss francs – is now available with cheaper solutions.

Neobanks Revolut and Wise, for example, let you track the cost of each purchase in Swiss francs using the mobile app. You can also use mobile Internet to check how much the amount in question is in Swiss francs.

Some service providers – including Alpian, Revolut, Swissquote, Wise, and Yuh – offer cards that are denominated in many different currencies. In some cases, you can hold sub-accounts denominated in different currencies, and purchases in a given currency are charged to the corresponding sub-account in that currency.

Rule of thumb: Always pay in the local currency

Whether you are paying for purchases, a hotel, or restaurant dining while traveling, or shopping online from foreign online merchants like Amazon or Booking.com, if you use a credit card or debit card to pay, always choose to pay in th local currency. The same applies to making cash withdrawals from foreign ATMs.

Using dynamic currency conversion is practical because you can see the price in Swiss francs before you pay. But the fees are very high, compared to paying in the local currency. Calculations performed by moneyland.ch confirm this: Paying for a 1000-euro purchase using a typical Swiss credit card generates fees of between 25 and 50 francs when you pay in the local currency, and between 120 and 150 francs when you choose to pay in Swiss francs. The difference is much more pronounced when you use a low-cost payment card, with a cost of around one franc when you pay in the local currency compared to around 95 francs when you pay in Swiss francs. 

Hypothetically, there may be situations in which using dynamic currency conversion could work out cheaper than paying in the local currency. But in practice, such situations are very unlikely.

More on this topic:
Using debit and credit cards while travelling
Swiss credit card comparison