Ask Away: Confusing currency conversions

You're usually better off paying in local currency for purchases while travelling. Photo / Getty Images

Eli Orzessek finds the answers to your travel questions.

I have recently returned from the United States and when using my credit card (Visa), in some stores the machine requested whether I wished to pay in US dollars or NZ dollars. In all cases, I selected the US dollars option. Was I correct in doing so? What is the difference?

When my Visa bill arrived, it showed a Macy's transaction of US$258.63 had converted to NZ$392.26 (not NZ$296.23 as shown on the sale printout.)

I would value your explanation of this and whether I am correct in selecting the option of paying in US dollars.
Liz Dixon

This is something I've always found confusing. I'd always thought the best option was to pay in the local currency so that's what I usually do, hoping for the best. To put this to rest, I've asked my contact at BNZ what the best way to pay is. Here's what a spokeswoman had to say:

"We can't address the Macy's bill specifically, but we can say customers are typically better off paying in the foreign currency for overseas purchases while travelling or buying online.

"While banks have an international charge that varies — typically between 2-3 per cent — which gets added to the purchase cost, the exchange rate conversion is often better through your card issuer as foreign currency transactions are processed by MasterCard and Visa, which have favourable exchange rates thanks to the sheer volume of their sales worldwide.

"When a retailer and their payment terminal provider performs the currency conversion (when you select to use NZ dollars, both while overseas and shopping online) they access rates available to them and charge that, usually plus a margin, potentially resulting in a greater cost to you, the customer."

While I often end up paying with my credit card overseas, I do notice I pick up quite a few extra fees of varying amounts. It really is best to pay with cash most of the time — I try to estimate a realistic amount of cash to last me for a couple of days and get it out from a local ATM. The fees from small withdrawals can really add up. However, it's a good idea to revisit your travel insurance policy before you withdraw, as some will only cover the theft of cash up to a certain amount.

Your bank may also offer a special "travel card" that you can load with multiple currencies before you leave — this means you'll avoid some of those extra exchange fees. The cards can also be used at an ATM, which you wouldn't want to do with your Visa card as you're generally charged daily interest for a cash advance. I've had similar travel cards provided to me with both my Air New Zealand Airpoints and Qantas Frequent Flier memberships.
I'm also visiting the States at the end of the month. Here's hoping the Kiwi dollar will improve a bit before then so I can get some decent shopping in as well.

I have travelled to Mexico a couple of times and always the credit card or the cash has been exchanged via US dollars. Is there any other way to get Mexican currency that might be more NZ dollar-friendly?
Fiona

In Mexico, US dollars and credit cards can be used in the more touristy areas — but having a variety of different ways to pay is always good. You can pick up some pesos at the airport exchange counters — I've read the exchange rate is actually better there in Mexico — as well as wielding your credit card. Outside the tourist hot spots, few businesses accept US dollars, so having some pesos on hand will definitely be useful.