When on vacation, which currency should I pay in?

After traveling and living abroad for the past six years, there’s one question I never have to think about anymore. It comes at the start of every wonderful meal and at the check-out desk of every souvenir shop: USD or EUR? (Or…GBP, BRL, MXN, etc.) The answer to me is obvious, but there have been a few times when traveling with friends and family that I’ve had to physically stop them from making the wrong choice. It may seem like it might not make a difference, but with very few exceptions, you should always pay in the local currency.

Here’s what’s going on when you tap your card and get the inevitable question, and what you can do to pinch those pennies (which do add up!) and avoid the pesky fees that accompany the fun of traveling abroad.

How it works

The only benefit of paying in your home currency is knowing exactly how much you will be charged, which is all well and good until you realize the credit card company is charging you a fee for it. Every time you pay in your home currency, a conversion fee is charged by the merchant (the credit card processing company, not the shopkeeper) at a rate that is typically worse than the market rate. Often, this fee is charged at a higher rate than what your bank will charge to do the conversion themselves. You may already have the benefit of zero foreign transaction fees baked into your card, which makes this conversion fee even more unnecessary.

How to avoid foreign transaction fees

Aside from paying in cash, there are a few ways you can avoid getting charged a fee just for spending money while abroad. Look into credit cards and debit cards that offer no foreign transaction fees as a perk, usually alongside other travel benefits. I use the Chase Sapphire Reserve Card for all my purchases, and always pay in the local currency. For me, this is the perfect card not only for earning points, but also for taking advantage of perks like Global Entry and airport lounge access. Depending on how much you travel, you might not need all these extras, but you can still find cards that offer this benefit with no annual fee, like the Capital One Savor Cash Rewards Card.

How to avoid ATM fees

If you need cash, there are some banks that offer global ATM fee reimbursements as a perk or may even have partner banks in your destination. However, most of the time, unless you order cash before your trip, you will have to pay a fee when you take out cash. But it doesn’t have to be as painful as you think. Whenever possible, avoid independent ATM companies – these are the machines you typically see in high-traffic tourist areas and are notorious for their high fees – and use a bank-owned ATM. Not every bank will be compatible with your card, so you may have to try a few options before you find something that works.