The proof you should always pay in local currency on holiday  (2024)

You're about to pay the bill at a restaurant in Europe when up flashes a question on the card machine: do you want to pay in euros or in pounds?

It’s an innocent enough enquiry, but you know that if you choose wrong, you’ll likely be ripped off. It is one of the most frustrating traps holidaymakers face when using their debit or credit cards abroad.

The correct answer is always to choose the local currency of the country you are in — so euros if you’re in the Eurozone, dollars in the U.S. and so on.

This is because when you pay in pounds, the foreign bank, shop or restaurant can set its own conversion rate to calculate your bill, which is usually much worse than the rate your bank would use.

But it is never clear exactly how much difference your decision will make to your wallet. Now, for the first time, we can reveal the true cost of paying in sterling overseas.

In an experiment run by Starling Bank, identical twins Heidi and Alice, 29, travelled to Berlin for a weekend.

They made exactly the same purchases and both used the same debit card, which charges no extra fees for spending abroad.

The only difference was that each time they used their cards, Heidi paid in the local currency, euros, whereas Alice paid in pounds.

For every transaction, it worked out more expensive to pay in pounds.

In the worst case, the difference was almost 10 per cent — which means you would lose £100 if you spent £1,000 over the course of your holiday.

Most restaurants, shops and cash machines overseas give tourists the option to pay in sterling — this is known as dynamic currency conversion. It can be tempting as it means you’ll be able see straight away how much the transaction will cost you in pounds and pence.

But the conversion rates used by foreign firms almost always work out as more expensive than if you had paid in the local currency and left it to your own bank or credit card provider to convert the cost.

UK banks typically use the exchange rate offered by Visa or Mastercard, which is as near to a perfect rate as you can get.

In this experiment, Alice and Heidi, who live in South East London, carried out seven transactions and in each case it was more expensive to pay in pounds. Even in the best cases, the extra cost of paying in pounds was still 3.1 per cent of the total bill.

The worst offender was a cash machine at Berlin airport, where both twins withdrew €200. Heidi chose to be charged in euros, which worked out as £177.44 at the Mastercard exchange rate.

Alice, on the other hand, accepted the offer to convert the €200 to pounds there and then using the foreign bank’s rate. This ended up costing her £195.18 — an extra £17.74 or 10 per cent.

When the sisters later split a €43.86 bill for co*cktails at their hotel, the difference was far smaller. Heidi paid her €21.93 bill in euros, which worked out at £19.45. Alice paid in pounds, costing her £20.06 — an extra 61p or 3.1 per cent.

The next day, the twins went shopping and each bought a scarf, a pair of trainers and a top from three different stores. Heidi paid in euros, spending €7.95, €69.10 and €9.99 — which worked out at £7.05, £61.30 and £8.86 respectively.

Alice again converted her bills to pounds and ended up paying £7.28, £63.31 and £9.15. So altogether she paid an extra £2.53.

After lunch — where, unusually, they weren’t offered the option of paying in pounds — they visited the Museum of Berlin, which had a €12 entry fee. Accepting the on-the-spot conversion cost Alice £11.05, while Heidi paid only £10.64.

Finally, at the airport the following morning, the twins bought some €12.50 chocolates from a duty-free shop. Heidi, as usual, paid in euros, which later worked out at £11.09. After agreeing to pay in pounds, the chocolates cost Alice £11.70 — an extra 61p or 5.5 per cent.

In many of these examples the difference between paying in pounds and euros is just a few pence. But over the course of a holiday this can add up. In fact, the rip-off is estimated to cost British tourists around £500million every year, according to travel money firm FairFX.

At the end of the Berlin trip, Alice had spent a total of £317.73 — an extra £21.90 compared to Heidi.

While this isn’t an enormous sum, it is an easy saving to make — all it requires is that you push a different button on the card machine. Experts say that some businesses are failing to give tourists a choice and automatically convert the bill into pounds.

A spokesman for Starling Bank says: ‘This isn’t always intentional as sometimes shop assistants or waiting staff don’t understand and presume they are doing their customers a favour by selecting to pay in pounds for them. But in line with the law, cardholders should be given a choice before they pay.’

Starling Bank’s research also showed that even if your debit or credit card charges a typical 2.99 per cent fee on spending overseas, it would still work out cheaper to pay in the local currency.