Often when paying for something abroad using a credit or debit card I'm given the choice to pay in my home currency (GBP) or in the local currency (e.g. I'm on holiday in Thailand so THB). Which option will generally give me the best rate or does it vary? The local retailer quotes the rate they will use but I don't know what rate my bank (HSBC) would use and whether there would be any other charges.
From my experience, almost always it is cheaper to pay in the local currency, including the bank fees and the bank conversion rates. If you let the store convert to your home currency for you it will be the least favorable rate you could have gotten anywhere.
There might be some exceptions, but I haven't seen these.
Having done quite a bit of research into the cheapest method to make purchases in foreign currency at my last job, and assuming you have a credit or debit card that doesn't charge it's own foreign transaction fee buying in the local currency with your credit card is by far the best way to go. Credit card companies foreign exchange rates closely track Forex markets and are very competitive and local merchants won't be able to compete in any meaningful way.
The only time it really makes sense to consider other options is if you can get a cash discount and or your purchase is large then you can consider other options to get local currency.
There is a lot of incentive for the local shop to hook you to a local forex conversion. Every credit card charge in foreign soil involves at least 2 banks: the local bank and your home bank. If you have shopped around, I presume you know exactly what your home bank's forex rates spread and the credit card international association's flat fee. So you know exactly which card to use when making foreign purchase. That is a dependable rate.
The local bank on the other hand would need to offer incentive to the shop and they need to make money. I would say most of the time, the rate would be pretty bad. I have a fairly good deal with my home bank so the rate is usually <1%. And with quick calculation on the spot, I found most local bank offers bad rates, a lot of times >4%.
So whenever I don't have time to do spot calculation, I check the local currency option. Even then, I sometimes found that they still slap me with home rate option. (this is the tricky part. They call it a home currency convenience. Yet, it is the local merchant and local bank that profit from it).
In the rare occasions that they charged me the higher rate in spite of my indication of using local currency, the amount is small. So small that it is not worth it for me to complain. So they get away with it.
I call this scam. I don't know why VISA and MC allow this to go on even to this date. I hope the competing payment system will put more pressure on them.
I think the answer is in your question - you need to know what all the rates are in order to decide.
- know what rate the vendor is using
- know what rate your home bank is using
- know what fees both are charging
With this do a comparison and choose the best offer - note that depending on situation, this can be a bargaining chip to use with the local vendor.
The info is much easier to get now with access to the net, although I have seen some seriously worn notebooks over the years (especially back when the system was a little less "dynamic").
I would also caution against making blanket assumptions - especially somewhere like Thailand where vendors are happy to haggle - the best way to go will change from city to city, country to country.