Foreign exchange: how to compare the different options to find out which one suits you best
When we buy foreign currency or make a payment in another currency (for instance, a US dollar bank transfer or a purchase in a shop abroad), we need to know the exchange rate, i.e. how much that currency is worth relative to our own. Exchange rates are floating. They fluctuate daily and usually have a different value depending on whether you are buying or selling currency.
In addition to setting the exchange rate, the entity providing the currency conversion service may freely establish a fee as payment for this service.
European legislation has strengthened information requirements on currency conversion services, particularly for retail purchases or ATM cash withdrawals using payment instruments (your card or mobile phone, for instance), so that users can compare the charges applied by different providers and choose the best option.
Since 19 April 2020, whenever currency conversion services are offered at ATMs or points of sale, whether in physical outlets or for online purchases, the provider will have to inform the user, in a clear and accessible manner, prior to initiation of payment, of the applicable exchange rate and fees (for example, by a sign placed on the counter or information displayed on the screen of the ATM, point of sale terminal or user device).
Additionally, the total amount to be paid for the goods and services in the local currency of the retail outlet (or the total amount of the cash withdrawal in the selected currency), including all applicable charges, shall be explicitly stated, together with the amount to be paid in the user’s own currency.
In these cases, users may choose between:
- Paying in their own currency (generally, in euro), in accordance with the exchange rate, fees and other information provided at the time of the cash withdrawal or purchase; or
- Paying in the currency of the retail outlet or ATM (for instance, in Danish krone). In this case, the currency conversion will be made subsequently by the user’s own bank, pursuant to the terms of the contract (exchange rate and fees).
To make it easier to compare the various conversion options, information on applicable charges should be expressed in the same way. For that reason, in addition to offering detailed information on the applicable exchange rate and fees, providers of currency conversion services must inform users of the total cost of the transaction. This cost shall be calculated as a percentage mark-up over the latest available euro foreign exchange reference rate published by the European Central Bank (ECB).