How and why to avoid PayPal’s 4.0% (or higher) foreign currency conversion fee

Starting on November 6, 2020, PayPal’s foreign currency conversion fee will be a minimum of 4.0%. In other words, if you make a US dollar purchase and are charged in Canadian dollars, PayPal will add at least 4.0% to the exchange rate. It is likely even higher than 4.0%.

As per its updated terms:

When you pay for goods or services or send money, and such transaction involves a PayPal currency conversion, the currency conversion fee will be a minimum of 4% for all currencies.

This currency conversion fee had already increased from 3.0% to 3.5% for USD and CAD transactions starting September 9, 2019.

Here is an example transaction from October 11, 2020:

At checkout click 'View conversion options'

The CAD-USD exchange rate as per at the time was 0.76247. The PayPal rate was 0.73101. This difference amounted to 4.13% ( ( 0.76247 – 0.73101 ) / 0.76247 ), and this is even before PayPal’s new terms take effect. This is an egregious fee. This is a similar tactic to an in-store terminal suggesting that it do the currency conversion for you — it does not work out in your favour. Most credit card companies charge you a 2.50% foreign exchange conversion fee. Some credit cards waive this fee.

If you have a choice for the purchase, just don’t use PayPal. If you must use PayPal, then hopefully you have a credit card attached to it and can instruct PayPal to charge your card in the original currency by clicking the “View conversion options” link. Then you can change the currency:

PayPal references its currency conversion fee

Choose the USD currency when paying

This process used to be slightly different, as there was a link “Convert currency with PayPal”. There also used to be a way to toggle a global setting per card within your PayPal account, so that you didn’t have to do this for every purchase. When contacted about the global “currency conversion” setting this month, PayPal said that you can no longer do it yourself:

Currently there isn’t an option to update currency for your card from your end

You can have PayPal change the default currency for a credit card from CAD to USD by contacting their support. This will solve the issue for USD purchases. However, if you make a CAD purchase, then you’ll have to remember to once again click “View conversion options” or be hit with two currency conversions on the same purchase: PayPal’s 4.0%+ fee from CAD to USD, and then your credit card’s conversion 2.5% fee from USD back to CAD.

If you set the default to USD, then PayPal will convert your CAD purchases

Bottom line: if you must use PayPal for a purchase in a foreign currency, hopefully you have a credit card and remember to turn off PayPal’s currency conversion. Even better: don’t use PayPal and/or use a credit card that doesn’t charge you any currency conversion fee.

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