When a customer uses his or her credit card in a foreign country, their purchase is added to their account. They are also charged a foreign transaction fee each time they do so. These fees can add up quickly if the person traveling uses it often.
Exchange Rate for Credit Cards
When you take your credit card out of the country and make purchases, your account is billed in the currency of your home country. If you buy an item while you are traveling using your card, the merchant bills you in the local currency. The credit card company then converts the amount of your purchase into the currency of your home country.
Many credit card companies do give consumers a better exchange rate for foreign currency than a bank does. When the consumer receives their credit card bill after the trip is ended, all they see on the account is the total amount of their purchase in their local currency, for example U.S. dollars.
Along with converting foreign currency to the local one for the customer, travelers may also be charged a fee on every purchase they make while out of the country. Visa or MasterCard may charge a fee to the cardholder as a matter of course. If the Visa or MasterCard the customer is using was issued by a bank, that institution may also charge a fee to the customer. These fees are added onto every purchase made outside of the country.
How Foreign Transaction Fees are Calculated
The foreign transaction fees are added to each purchase by the credit card issuer and the bank the card is associated with. A customer may be charged a full percentage point on the amount of their purchase from Visa or MasterCard. Along with this fee, the bank issuing the credit card adds its own fee. The customer could be charged an additional 2% as a processing fee from this institution. The total amount collected in fees for each transaction could be 3% of the value of the purchase.
American Express operates in a different way than other credit card providers. The company has traditionally not been associated with banks, so its customers haven’t been charged bank fees on foreign transactions. The company now offers card services through Citi and Bank of America. Customers who choose to open an American Express account through one of these banks are charged a bank fee, along with the foreign transaction fee that American Express collects on these types of transactions.
How to Avoid Foreign Transaction Fees
If the cardholder makes a number of purchases while on vacation, these credit card foreign transaction fees can add up quickly. Careful planning is necessary if you want to avoid being charged. Limiting your spending on your credit card while out of the country is one way to keep the foreign transaction fees down.
While you may not feel comfortable carrying large amounts of cash with you while you are on your trip, get some money converted into the local currency of the country you will be visiting before you leave. You may want to consider carrying travelers checks that you can cash in after you arrive or use for making purchases. They will have a fee associated with them as well, but you are protected if they are lost or stolen. The company will issue replacements promptly.
Another way that you can avoid paying too much in foreign transaction fees is to consider how much the credit card issuer you are considering will add to your bill before applying for the card. If the fee amount isn’t clearly explained in the company’s terms and conditions when you apply for the card, contact the company’s customer service department to ask how much they charge on each foreign transaction.
Capital One is a credit card issuing company that doesn’t charge foreign transaction fees to its customers. Customers are still charged 1% as a MasterCard fee. The company absorbs the bank fee instead of passing it along to cardholders.
Shopping around is a good way to find a credit card issuer that charges lower rates for foreign transactions. If you are a person who has traveled, or intends to do a lot of traveling, look at these fees very closely before you decide on a credit card. You can start comparing credit card foreign transaction rates right now by clicking on the credit card Chaser tool on this page. There is no charge do to so, and you could end up saving a full percentage point or more on your foreign purchases. Use the Chaser now to start comparing credit cards!