SGD or Foreign Currency? Don’t Fall for the DCC Trap When Shopping Overseas

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When you are shopping overseas or buying things from a foreign website, your merchant may provide you with a service called Dynamic Currency Conversion (DCC), which allows you to choose which currency to pay in – Singapore dollars (SGD) or the foreign currency (e.g. USD and Euros). 

Which do you choose? SGD? Wrong answer. You should always pay in the local currency of the place you’re in or the website you are buying from.

Why? The answer lies in the fees charged when you opt for Dynamic Currency Conversion. We’ll discuss this in more detail below, but first, let’s understand what kind of charges you will incur when you make overseas transactions. 

To understand why DCC isn’t good for you, you need to know what are the fees involved in an overseas credit card transaction. 

Overseas credit card transaction fees

When you’re making a transaction overseas, you have to pay some fees whether or not you make it in SGD or foreign currency. This may include charges applied by the payment network, bank administration, and/or merchant.

  1. Transactions in foreign currency – Bank administrative charges, as well as charges put forth by card associations (such as Visa, Mastercard, American Express)
    • The combined fees from most card issuers in Singapore typically range from 1% – 3%. CIMB Visa Signature and CIMB Platinum Mastercard do not charge admin fees
  2. Transactions in SGD but processed abroad – Card association fees (around 1%) and other not-so-transparent potential markups. The potential markups are usually applied at the point of transaction and need to be acknowledged and accepted by you

Markups mean you don’t save by paying in SGD

Firstly, paying in SGD will not save you from foreign transaction fees applied by your card association. The notion that doing so will save you from foreign transaction fees is nothing but a misconception. Sadly, it isn’t just the foreign transaction fee that you should be worried about.

When you make an instant conversion to SGD, you incur a DCC fee for your overseas transaction. This is especially if you are using a Mastercard or Visa. Sometimes, it’s reflected as a separate line item on your credit card bill, and sometimes it’s combined with the cost of the purchase. 

What is Dynamic Currency Conversion?

Have you ever noticed that when you’re shopping abroad or paying for your hotel stay, you sometimes get asked if you’d like to pay in your home currency (SGD) or the local currency? You’ll see this when you make transactions online as well – on websites such as Amazon, Agoda.com, ASOS and many more. 

If you opt to pay in your home currency, the merchant will convert the foreign currency amount to SGD on your behalf. That service is called Dynamic Currency Conversion.

HSBC example of DCC

Here’s what HSBC says about Dynamic Currency Conversion

Dynamic Currency Conversion sounds attractive because while we are happily spending, we have no idea what exchange rate our credit card company would use when they convert our foreign currency transaction to SGD. So when offered an instant conversion, it sometimes feels more assuring to go with the converted amount. 

Example from of a recent PayPal payment:

PayPal DCC Example

After selecting to convert with card issuing bank, I paid S$28.03 as the final amount. It’s less, and there might be additional VISA/Mastercard fees.

Unfortunately, the certainty of knowing how much your transaction will cost in your home currency does not come cheap. For providing the DCC services, merchants will layer on a markup on the currency exchange rate. These hidden charges can sometimes go as high as 5% or more. 

Remember, opting to pay in SGD does not save you on the foreign transaction fee. Your credit card issuer will still charge the admin fees (around 1%) on the foreign transaction in addition to the hidden DCC fees that you paid to the merchant. In order to save, the DCC markup needs to be less than 2% at least, something that’s quite unlikely.

The certainty of knowing how much your transaction will cost in your home currency does not come cheap

How can you avoid incurring unnecessary DCC fees?

Here are a few suggestions:

  • Always opt to pay in the foreign currency when shopping overseas instead of SGD 
  • If the merchant insists that you pay in SGD, ask for the transaction to be voided and consider shopping elsewhere
  • Write ‘DCC rejected’ on the credit card charge slip on both copies – the merchant copy as well as yours. This will help your case if you choose to raise a dispute
  • Use a multi-currency account and use its associated debit card to pay in the local currency

In short, when using a credit card for your purchases abroad, do not pay in SGD. It is usually costlier as compared to paying in foreign currency with your credit card. Plus, paying in SGD when shopping overseas also means you don’t get any overseas transaction rewards from your credit card. 

Read this next:

Dynamic Currency Conversion: Foreign currency or home currency when shopping overseas | BankBazaar

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