Here’s the simple rule you need to know when using a foreign ATM.

When it asks which currency to charge you in, there’s only one right answer…

In the Eurozone, that answer is Euros. In Sweden, Swedish Krona. In Britain, Pounds. Always, always, always choose to be charged in the local currency of the country you’re in. If a Spanish ATM asks if you want to be charged in GBP, say no. Don’t let the machine do your currency conversion.

Here’s why:

Foreign ATMs and card machines will often say nice things like “This ATM offers conversion to your home currency”. On the face of it, that seems pretty generous. 
But in reality, paying in your home currency is hidden-fee-hell – a scam that goes by the name of Dynamic Currency Conversion (DCC). You’re effectively asking a foreign ATM provider or bank to gleefully make up an exchange rate for you. And the only thing more likely to screw you over than your bank, is a foreign bank. Let’s look at some examples:

Taking out EUR in Barcelona, with a UK card.

Transaction
20.00EUR from a Spanish ATM using a UK GBP card.
 
What happened?
The ATM tells me the rate is 0.8375, and that I will be charged 16.75GBP for my 20.00EUR . The screen states “Mark-up 2.00% commission on Santander Wholesale Rate”. This is a Santander ATM, and the account I’m using is with HSBC, so this 2% is the EXTRA cost of letting the ATM do my currency conversion for me.

I chose to be charged in EUR (remember, local currency), and when I later checked my HSBC statement I had been charged 16.44GBP – 2% better that what the ATM quoted for the Santander ATM conversion.

Check how the screen also says “Press Yes for GBP, No for EUR”, clearly goading you in the direction that makes Santander the most profit. Slippery devils.
 
The maths
BEING CHARGED IN MY BANK ACCOUNT’S HOME CURRENCY (GBP)
Theoretical cost of 20EUR at the mid-market rate: 15.79GBP
What it actually would have cost: 16.75GBP
Difference (i.e. The Total Real Fee Charged): 0.96GBP (6.1%)
 
BEING CHARGED IN LOCAL SPANISH CURRENCY (EUR)
Theoretical cost of 20EUR at the mid-market rate: 15.79GBP
What it actually cost: 16.44EUR
Difference (Total Real Fee Charged): 0.65 GBP (4.1%)
 

Bottom Line: You should choose ‘EUR’ when in Spain.
In this example, choosing ‘GBP’ would have pushed the fee up from 4.1% to 6.1%
 
Now let’s look at the opposite…
 
Taking out GBP in London, with an EUR card
 

Transaction
100GBP from a UK ATM using an Estonian EUR card.
 
What happened?
No DCC commission was stated on-screen this time. All i’m given is a rate of 1.3551 for conversion to my account’s ‘Home Currency’ (in this example, that’s EUR). The machine tells me I’ll be charged 135.51EUR for 100GBP. The mid-market rate that day was 1.2601, so the amount I should have been charged is 126.01EUR.
I chose to be charged in GBP, and looking at my statement later, I was actually charged 126.12EUR. That’s a massive saving of nearly 10EUR. Read more about this one in a previous post.

The Maths
BEING CHARGED IN MY BANK ACCOUNT’S HOME CURRENCY (this time that’s EUR)
Theoretical cost of 100GBP at the mid-market rate: 126.01EUR
What it actually cost: 135.51EUR
Difference (Total Real Fee Charged): 9.50EUR (7%)
 
BEING CHARGED IN LOCAL BRITISH CURRENCY (GBP)
Theoretical cost of 100GBP at the mid-market rate: 126.01EUR
What it actually cost: 126.12EUR
Difference (Total Real Fee Charged): 0.11EUR (0.1%*)

* best deal ever, thanks to my Estonian bank.

Bottom Line: You should choose GBP when in the UK. The ATM conversion fees would have jumped to a massive 7% had I chosen to be charged in my Estonian bank account’s home currency.

Hidden-Fee-Hell
So there you go. Yet another hidden scam, this time brought to you by foreign banks. But it’s one that you can easily avoid, even on their home turf. Just always keep that simple rule in mind: choose to be charged in the local currency of the country you’re in, and don’t let the ATM do your conversion for you.

By Taavet Hinrikus, TransferWise Co-Founder
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