Using a credit or debit card can be a very convenient way to withdraw foreign currency from an ATM when travelling, and to buy things when you’re overseas. It’s also many people’s first choice when it comes to shopping online, anywhere in the world. However, if you’re using your card to complete an international transaction, it can be pretty difficult to work out exactly how much your purchase will cost you.
Let’s say for example that you have a Mastercard debit card linked to a GBP bank account - but you’re taking a trip to Paris and spending in euros while you’re there. There are some fees and charges you should know about - and it’s important to also make sure that the exchange rate applied to your purchase is fair. That’s the only way you’re going to know how much that romantic dinner near the Eiffel Tower will really cost you.
While banks and money transfer providers often give you a bad exchange rate to make extra profits, there are alternatives
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You can keep reading to learn more about the fees and exchange rate that Mastercard uses.
Here’s all you need to know about the exchange rate that will be applied to the transaction, if you use your Mastercard abroad, or if you use it to make purchases online, in a foreign currency, from a merchant based overseas.
You can check the Mastercard exchange rate, for either a transaction you’re making today, or one you’ve made in the past, using the Mastercard currency conversion calculator.
To use it, you’ll need the following information:
- Date of transaction
- % fee added by your bank (if relevant)
- Currency and amount of the transaction
- Currency of your card
Plug in all the details, and the calculator will tell you the cost of the transaction in the currency of your card.
There are a few things you should be aware of, though, when you run this calculation. Mastercard warns users that the costs are indicative, and could vary if your bank adds any additional fees, for example. The small print also explains that the exchange rate used could have changed between the time you place your transaction, and the time it’s processed:
“Foreign exchange rates are specific to the date and time Mastercard processes the transaction which may be different from the transaction date.”
What’s important, is to be able to compare the exchange rate used by Mastercard, and the interbank rate - commonly called the mid-market rate. This is the only real exchange rate, and should be your benchmark to make sure the Mastercard rate is fair. More on that in a moment.
You’ll also need to know if your bank adds a percentage fee for using your Mastercard abroad. This should be set out in your account terms and conditions, or in the fees and charges section on your online banking.
(Source 4 February 2018)
So, what’s the mid market rate, then? In short, it’s the only real exchange rate. It’s the rate you’ll find if you google your currency pairing - and the one banks use to sell currency to each other on big global financial markets.
Unfortunately for customers, many banks and money transfer services do not use the mid-market rate when carrying out currency conversions. Instead, it’s common practise to apply an inflated ‘day rate’.
This is where the bank or money transfer service takes the mid-market rate and adds their own margin on the top of it. Often, this allows them to claim that they offer fee-free, or zero commission currency conversions. It sounds like a bargain, but actually their profit is rolled into the marked up exchange rate. As a customer, you’re unable to see clearly what you’re being charged - and often this means you get a poor deal.
The mid-market rate moves up and down depending on a huge range of factors. However, it’s easy enough to find the rate for the day, or a historical rate - just use an online currency converter. You can then compare the rate your card provider, bank, or money transfer service is offering you with the real exchange rate, to check if it’s fair.
Sometimes, when you use your Mastercard in an ATM when you’re abroad, or to buy goods or services overseas, the exchange rate used might not be the one that Mastercard sets. Here’s how Mastercard explains it:
“If your transaction is converted by the merchant or ATM operator, Mastercard foreign exchange rates will not apply. This will usually occur when you select to pay in your card's currency as opposed to the currency of the merchant or ATM.”
This is because of something known as dynamic currency conversion (or DCC for short).
You might have already come across DCC if you travel regularly. It’s where you’re asked if you’d like to pay for your transaction in your home currency instead of the local currency wherever in the world you are. Banks say that this is a handy service, because you can instantly see the costs in your home currency. However, DCC can leave you exposed to hidden fees and unnecessary costs.
This is because it’s the ATM provider, merchant, or an intermediary bank who decide the exchange rate which is used, if you choose DCC. Unlike Mastercard, they have no reason to try to keep you happy - you’re not their customer, after all. So they’re likely to mark up the exchange rate used, to give them a profit on the transaction. You don’t get to check the rate applied because you only ever see the cost in your home currency - and that can mean that you’re getting a pretty raw deal.
(Source 4 February 2018)
It’s pretty common for banks to add other charges for using your Mastercard abroad, either to pay for goods and services, or to withdraw cash from an ATM. These can vary quite widely, and could be fixed charges, or a percentage cost of the transaction. That can make them pretty pricey.
Check out the terms and conditions on your specific bank account - they’re usually published online, and the highlights are often included on the back of account statements. The fees applied are called different things by different banks. Look for details of charges levied for international payments, or for international cash withdrawals, to make sure you’re clear on all the costs you could meet along the way.
Nobody wants to be ripped off, or pay more than they need to while they’re travelling. If you’re using your Mastercard while you’re overseas - or if you want to use your Mastercard to make purchases from a merchant based abroad - it’s important to be able to figure out the true cost of the transaction. It can be a little complicated, because you have to understand not only the Mastercard exchange rate, but also any percentage or flat fees added by your bank.
Above all, make sure you avoid DCC, so that you get the best possible deal on your Mastercard transaction.
Figure out your home bank’s fees, which will be set out in your account terms and conditions, and use the Mastercard currency converter, to help you understand exactly what you’ll be charged for your international transaction with Mastercard. By knowing the mid-market exchange rate, you can check that the rate applied is fair - and make sure you are getting the most for your money.
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