Holidaymakers who use a prepaid Mastercard abroad will no longer have to choose between paying in pounds or the local currency, helping them to avoid rip-off exchange rates and fees.
From today, Mastercard is blocking a loophole known as dynamic currency conversion (DCC) on prepaid multi-currency cards which allows travellers to pay in pounds so they know how much they are spending.
While it may seem more convenient to pay in sterling, you can end up being hit with excessive exchange rates and fees as the vendor or ATM is able to define the rate that is used to convert your transaction from.
The new rules being brought in by Mastercard only apply to prepaid currency cards as travellers have already decided which currency they wish to pay in before they go on holiday.
This means anyone using a prepaid Mastercard abroad will now not be offered the choice of which currency to use when withdrawing money.
They will instead be automatically charged in the local currency when using an ATM or a shop.
However, Mastercard has not scrapped DCC charges for credit and debit holders who will still be offered the choice between paying in pounds or the local currency.
This means credit and debit card holders could still be at risk of higher charges and fees if they don’t choose the local currency.
A Mastercard spokesman says: “We’ve recently made changes to our prepaid programmes.
"Dynamic currency conversion will no longer be offered for prepaid multi-currency Mastercard cards as these cardholders have predetermined the currency they wish to pay in before they travel and any purchases are made.”
Research by currency coversion company FairFX found that holidaymakers were duped into forking out £490 million in fees when they use their payment cards abroad as a result of DCC in 2017.
Ian Strafford-Taylor, chief executive of FairFX, says the rule change is great news for travellers who will no longer be confused by unfair conversion charges.
He says: “It’s vital that people using debit and credit cards abroad – whether for work or pleasure – stay vigilant to the unfair practice. When asked if they want to pay in pounds or local currency, opting to pay in pounds appears logical as most people think in their home currency.
"But this is nothing but a hyper-inflated rip-off, duping people into paying unnecessary fees and accepting unfavourable exchange rates.
“The key thing to remember is, when abroad and asked if you want to pay in pounds or the local currency, always pay in the local currency to avoid nasty surprise fees. Debit and credit card users would do well to switch to prepaid cards to avoid any uncertainty.”