I will use hypothetical numbers, just for examples.

I have account in my bank in euros (EUR). I buy something online and pay for it with dollars (USD). Lets pretend exchange rate is 1 USD = 0.5 EUR. So when I buy something for 30 USD, I get 30 USD reserved in my bank, but stated as 15 EUR. I make a record in my book that I have spent 15 EUR.

Several days later exchange rate changes, lets pretend that it changes to 1 USD = 0.66 EUR. The same day bank fixes the transaction it has reserved earlier. Still it is 30 USD, but since the rate has changed, it fixes 20 EUR, not 15 as previously.

So the day I buy something I assume I pay 15 EUR, but later bank takes 20 EUR :(

Is such bank's behavior is a regular, or are my rights violated?


Your bank does not reserve 30 USD since your account is held in Euros. Suppose that you are paying directly from your bank account for your on-line purchase, e.g. filling out the form for an electronic funds transfer from your bank account instead of the form for a charge to your credit card. At some later time, the merchant will request your bank to send them 30 USD from your account as per the authorization that you have granted them to withdraw 30 USD from your account. Until the bank receives this request, it has no information that you have authorized this charge. Upon receiving the information, the bank deducts the appropriate number of Euros depending on the exchange rate on the day when it processes this request and sends the merchant 30 USD. So, the exchange rate on the day that you made the transaction has little to do with the exchange rate that you actually receive.

  • Thank you very much, it really helped to understand why the bank behaves in this way. – Dima Oct 20 '12 at 21:46
  • Just for my own clarity, you are saying that there are two transactions, one is an authorization that checks for available funds, and the second is the actual debit? Therefore they are mutually exclusive, but are often found together and in that order, correct? – MrChrister Oct 21 '12 at 4:51
  • @MrChrister No, I am saying that when one fills out an on-line form on a website giving the bank information and authorizing the merchant to withdraw a specific amount from the bank account, that is not something that is necessarily instantaneously communicated to the bank; this might be done in batch mode (along with other similar requests) at the end of the day, and might be something that is processed through the merchant's own bank. Even when a credit card is swiped at a POS terminal, all that happens is that validity is checked and a tentative amount is communicated to the credit card co. – Dilip Sarwate Oct 21 '12 at 12:14
  • @MrChrister For example, when paying for a meal, the amount is the cost of the meal. The total amount (which may be different because of the tip) is not a charge to the account until it is actually posted to the card account; many card sites show these as pending transactions. In either case, for foreign exchange transactions, the rate of exchange is as of the date of posting of the credit card charge or the deduction from the bank account, not the date when the transaction (click "Submit" on web site or swipe card at POS terminal) actually occurred. – Dilip Sarwate Oct 21 '12 at 12:20

I believe its regular, as it does make economical sense. The transaction exchange rate is fixed when the transaction is posted, and I'm sure there's disclaimer telling you that when you're looking at pending transactions. The bank will only actually pay the money when the transaction is posted, based on the exchange rate at that time. If the exchange rate was different when the transaction was actually made, why would the bank have to bear the difference?

If you do transactions in foreign currency often - consider having an account in that currency (shouldn't be hard to open a USD account in Europe), and then you can chose when to fund it and control the exchange rates. Otherwise - consider hedging against currency fluctuations, that's what large volume traders usually do.

  • Thank you very much, it really helped to understand why the bank behaves in this way. – Dima Oct 20 '12 at 21:45
  • " If the exchange rate was different when the transaction was actually made, why would the bank have to bear the difference?" Wrong assumption. Because the bank knows (with high certainty) that you'll be buying foreign currency in the future, it has the ability to front-run on those transactions. For stocks, that would in fact be illegal, but banks are apparently allowed to do so in Forex. – MSalters Oct 23 '12 at 10:45
  • @MSalters yes, but why would the bank do that? If the transaction arrives in 5 days? 50 days? 500 days? Why would the bank bother? Even if the bank knows - then so do you, do it yourself. – littleadv Oct 23 '12 at 17:44
  • @littleadv: I know about one transaction, the bank about many more. – MSalters Oct 24 '12 at 15:57
  • @MSalters exactly. Imagine the complexity of these read-ahead purchases and then matching to posted transactions (and what happens if it is never posted? Mess). – littleadv Oct 24 '12 at 19:15

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