Paying Abroad: Pounds or Local Currency at the Till

When a card machine or cash machine abroad asks whether you want to pay in pounds or the local currency, the local currency is usually the cheaper answer. The Association of British Travel Agents tells travellers to choose the local currency, because that gives a better exchange rate, and one bank says plainly that in most cases paying in local currency will be cheaper¹.

The reason is who sets the rate. If you choose pounds, the retailer or the cash machine operator converts the price for you and applies its own exchange rate, which usually includes a markup. If you choose the local currency, the conversion is left to your own bank or card provider. The retailer's rate is often less favourable than the card provider's³.

The same choice appears at cash machines, and the same answer applies. It also appears when you send or receive money across borders, where the currency you choose can change both the fee and how long the payment takes.

Pay in local currency: usually the cheaper choice

The advice from banks, building societies and travel bodies is consistent. When paying for goods abroad with a card, always pay in local currency⁸. One bank's security guidance puts it as a way to avoid extra charges: always request to pay in the local currency of the country you are visiting¹⁰. Another says that choosing the option to pay in local currency when using your card abroad is likely to be cheaper than paying in your own currency¹¹.

The reason is not that the local currency is somehow stronger. It is that two different parties are offering to do the conversion, and one of them is a shop. Point-of-sale currency conversion rates are set by the retail outlet, and they are usually less favourable than the rate your card provider would apply¹². When you pay in the local currency, your card provider does the conversion at its own rate, and any fee for using the card abroad is the one set out in your account terms.

Paying in pounds does have one thing going for it: certainty. You see the sterling amount on the terminal before you approve it, so you know exactly what will leave your account. Paying in the local currency means the final sterling figure is not fixed until the conversion happens. That certainty is what the retailer's markup buys, and in most cases it costs more than it is worth¹³.

What dynamic currency conversion is and how it adds cost

Dynamic currency conversion is the name for the choice itself. It is the option, when paying abroad, to pay in pounds or the local currency, where the retailer or ATM converts the price into GBP and applies its own exchange rate³. Visa describes the same thing: you may receive the option to pay in your home currency, which includes exchange rate and additional fees¹⁴.

Two things are bundled into that sterling price. The first is the exchange rate, which is set by the retailer or their bank rather than by your card provider, and which may carry a markup¹⁵. The second is any additional fee the retailer builds in. Because both are folded into a single number on the screen, the cost is hard to see at the moment you are asked to choose.

There is a wider principle in UK financial rules that a conversion should be transparent. Where costs and charges must be calculated in pounds sterling for certain investments priced in another currency, the rules require a statement of the exchange rate used¹⁶. The same instinct applies here: the rate matters, and it should be visible. At a till abroad, the rate behind the sterling figure is the retailer's, and it is the part of the transaction you cannot see.

Paying in pounds vs local currency: how the exchange rate differs

The two options use two different rates, set at two different moments by two different parties.

If you pay in the local currency, your card provider converts the amount at its own rate, and you get the most up-to-date exchange rates along with no dynamic currency conversion fee¹³. If you pay in pounds, the retailer or ATM converts the price into GBP and applies its own exchange rate, and the rate is set by the retailer or their bank, which may also add extra conversion fees³.

The timing differs too. Exchange rates move through the day, and the rate that applies to a transfer depends on the day and time the payment is made and on the bank or company used¹⁷. A rate locked in at a till is a snapshot chosen by the retailer, not by the market at the moment your bank settles the transaction.

For most holiday spending the difference is a percentage rather than a headline figure, and it is the kind of cost that is invisible unless you compare the sterling amount on the terminal with what your card provider would have charged. The practical test is simple: the local currency option leaves the rate to the party with no interest in marking it up.

Cash machines abroad: the same choice applies to withdrawals

A cash machine abroad can offer the same pounds-or-local-currency choice, and it works the same way. The machine converts the amount into pounds at its own rate, or it lets the withdrawal go through in the local currency and leaves the conversion to your bank.

The Financial Conduct Authority treats a debit card cash withdrawal in a foreign currency outside the UK as a regulated activity, listed in its banking conduct rules¹⁸. That matters because it puts the withdrawal inside the framework that governs how your bank handles it, rather than leaving it as an unregulated favour from a machine operator.

What you pay for the withdrawal itself depends on your account. One bank charges a fee for cash withdrawals in foreign currency from cash machines, excluding its own machines and some other banks' machines in the Republic of Ireland¹⁹. Guidance for consumers puts the typical spending or cash machine charge at between £1 and £3 each time you use your card, except for euros in the EU⁴.

Rules also cover what a basic bank account must allow. A payment account with basic features must let the holder withdraw cash within the European Union in sterling or in the currency of the member state where the withdrawal is made, at counters and at automated teller machines²⁰.

Card payments and cash withdrawals with your bank's card

The pounds-or-local-currency choice appears on debit cards, credit cards and cash cards alike. One bank's support pages state that you can choose to pay for goods in the local currency or pounds sterling whenever you use your debit, credit or cash card, including cash withdrawals²².

What your own bank charges on top varies widely, and it is worth knowing before you travel.

Some accounts are built around not charging for overseas use, and others charge per withdrawal. The pattern to look for in your own terms is whether the fee is a percentage of the amount, a flat charge per withdrawal, or nothing at all, and whether euros within the EU or EEA are treated differently from other currencies.

Prepaid foreign currency cards are a separate case. Some charge fees for withdrawing cash in the UK, and it may be cheaper to use them for purchases than for cash, so it is worth checking the card's terms before withdrawing²⁵.

Sending and receiving money abroad in pounds or local currency

The currency you choose matters for transfers as well as for spending, and it changes both the fee and the speed.

On sending, one bank lets you choose to send your payment in pounds sterling or the local currency⁷. Another charges £15 for a local-currency payment to the United States²⁶. A third charges £15 per payment for customers in Northern Ireland and Great Britain sending money outside the UK²⁶. One bank's charges are £0 if the payment is sent in pounds within the EU, £0 if sent in euros to an EEA country, and £20 for all other payments made through telephone banking or in branch²⁷.

Speed differs by currency too. One bank says a payment outside the UK in pounds arrives the next working day, with an online cut-off time of 3.00pm, while a payment outside the UK not in pounds, euros or US dollars may take up to four working days²⁸.

On receiving, the charges vary just as much. One account charges £5 to receive money in a foreign currency, and £5 to receive money from outside the UK in pounds sterling⁵. Another charges £2 for pounds received from outside the UK, and £2 for currencies other than pounds from any country²⁹. One account makes no charge for receiving any payment type in foreign currencies, but converts the foreign currency into pounds using its own inbound exchange rate³⁰. A foreign-currency cheque can cost £10 to pay in²⁸, and one basic account charges £6, plus postage, transmission and agent's charges, for receiving payments equivalent to over £100 in a currency other than euros or Swedish Krona³¹.

Some payment services are pounds-only. One bank's Request a Payment service can be used abroad, but only to send and receive pounds sterling³². Where a public body is involved, the currency may be fixed: overseas payments of Child Benefit overpayments should be made in sterling, and the bank may charge if another currency is used³⁴. Stamp Duty on shares must be paid in pound sterling³⁵.

For anyone living abroad, the currency of a pension matters. The State Pension is paid in pound sterling and then converted to the local currency, and the amount can change with the exchange rate³⁶. The conversion usually uses the exchange rate at the time of the conversion³⁶.

Where the protection stops

Two limits are worth knowing.

The first is compensation. If a bank or building society fails, the Financial Services Compensation Scheme pays compensation in pound sterling, not in any other currency³⁸. Money held in a foreign currency account is still protected, but the payout comes back in pounds, so the amount you receive reflects the sterling value at that point rather than the currency you held.

The second is the rate itself. Nothing in the rules guarantees you a particular exchange rate on a card payment or a transfer. What the rules do is require transparency in some settings, such as the statement of the exchange rate used for certain charges calculated in pounds¹⁶, and they put foreign-currency cash withdrawals by debit card inside the regulated framework¹⁸.

If something goes wrong with a card payment abroad, the usual routes apply. A disputed transaction can be raised with your card provider, and if you are unhappy with how a complaint is handled you can take it to the Financial Ombudsman Service. For free, impartial help with money questions, including banking and travel money, MoneyHelper is the government-backed service⁴.