How to avoid currency conversion losses
To avoid currency conversion losses, hold funds in a multi-currency account, refuse dynamic currency conversion when paying abroad, and move money in fewer, larger transfers. The right steps depend on whether you are travelling, running a business or sending money.
Conversion losses usually come from exchange rate markups, hidden spreads and fixed fees that add up each time money changes currency.
- Pay in local currency: When a card terminal or ATM abroad offers to charge you in your home currency, pick the local currency instead. Accepting the home currency option triggers Dynamic Currency Conversion (DCC), which carries a markup.
- Low-markup travel cards: Travel debit cards and prepaid forex cards can give rates close to the market rate with lower fees than standard cards.
- Buy cash before you travel: Ordering foreign currency through your local bank ahead of a trip usually costs less than exchanging at airport kiosks, which tend to charge high fees.
- Hold foreign currency balances: Freelancers and businesses can receive payments into a multi-currency account and keep the funds in that currency until the exchange rate moves in their favour.
- Natural hedging: Paying overseas suppliers or contractors straight from a foreign currency balance means the money is not converted twice.
- Local pricing and payment methods: Businesses selling internationally can price in customers' local currencies and offer regional payment options to limit conversion costs.
- Forward contracts: A forward contract with a bank or financial provider fixes the exchange rate for a large future transaction that you can predict in advance.
- Fewer, larger transfers: Sending bigger amounts less often avoids paying a fixed transaction fee on many small transfers.
- Compare providers: Check live exchange rates and the spread each transfer platform adds, rather than defaulting to a traditional wire service.