The vast majority of credit card companies charge a fee for foreign transactions, but the trend is moving toward the elimination of these fees. Several have never had the fees, while others have recently eliminated the fees on some of their credit cards. It is getting easier to find no foreign transaction fee cards than it was previously.
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You will incur credit card foreign transaction fees almost anytime you travel overseas. You may even incur them for transactions that take place in the United States.
Did the new credit card law affect foreign transaction fees?
The Credit Card Act of 2009 made many changes in the disclosure rules and fee charges of credit card companies. However, foreign transaction fees were not included in the act.
What exactly are foreign transaction fees?
They used to be called currency conversion costs, but they now apply to a variety of transactions where foreign banks, foreign currency, and/or foreign companies are involved. Whenever you engage in something that has an overseas component, you are likely to be hit with a fee.
How much are the fees?
The fees are generally a percentage of the transaction amount. They range from about 1% to 3% percent. Some credit cards carry a double charge, with the bank charging, say, 2% and the credit card company tacking on another 1%. Other credit card companies charge a fixed amount ranging from $1 to $3 in addition to the percentage charge.
What are some examples of when the charges apply?
The most obvious example is when you use your credit card to make a purchase in a foreign country. Say you purchase a jacket in France, charging 100 Euros to your credit card. The credit card company will convert the euro charge to dollars, based on the exchange rate in effect on the morning of the purchase date. If the euro was worth $1.40, you will be charged $140 on your card. In addition, if the card is one that charges a foreign transaction fee of 3%, another $4.20 will be added to the charge. So, it’s sometimes hard to figure just what that jacket cost you.
A more insidious example is when you purchase something like airline tickets in the United States for travel on an airline based in a foreign country. Even if the entire transaction is denominated in dollars, the credit card company will add a foreign transaction fee of 3%. Therefore, if the airline tickets cost $1,000, you will be billed $1,030.
Are these charges justified?
That’s hard to say. It appears the credit card companies make these charges because they can. The charges are generally such a small portion of the overall bill; they are either overlooked or disregarded. Most people incurring these charges, whether they are well-to-do customers or business travelers, probably don’t pay much attention to them. The credit card companies don’t reveal if there is actually an extra cost involved in billing the transactions. But as the economy continues weak, consumers are becoming savvier. The credit card companies know this and as a result, many of them are doing away with foreign transaction charges which was mentioned in the New York Times.
Why don’t I just convert my dollars to the local currency?
The credit card companies generally receive the most favorable conversion rates, better than the average consumer does. So even if you avoid the charges, you still might not get the favored conversion rates the card companies get. The differential in conversion rates range from 7.9 to 14.7% from what the credit card companies get. In this case, the 3% foreign transaction fee charge still leaves you ahead. You also may not want to carry an excessive amount of cash overseas. Moreover, since currency conversion rates change daily, you may lose if you carry the converted currency for any length of time.
Why don’t I just use ATM machines abroad to avoid the credit card fees?
Most credit card companies charge a fee to use an ATM machine overseas, probably at least equal to the foreign transaction fee, so there is no benefit to using a credit card in an ATM machine. It might make sense to carry a debit card, just for ATM withdrawals, although the rules vary with each company according to Flyerguide.com.
What is the best course of action?
When engaging in overseas transactions, use a credit card that carries no foreign transaction fee. When shopping for a card, pay attention to its other features. Make sure the credit card annual fee if there is one, will not negate the benefit. If the card offers points, ascertain that they will be of use to you.
To learn about which credit cards will provide you with the benefits you want, search online credit cards with the FREE credit card finder above!