Using Credit Cards Overseas: Finding a card that actually pays you back

My last column I left off with a reference to finding the perfect credit card with the lowest foreign currency transaction fees and big cash-back bonuses. I raised the question about the cash back program because I have a USAA MasterCard that I have used for many years only because they offered me a big fat refund at the end of the year. They’ve always charged me 1% for the currency transaction fee, but they gave a 1% rebate every January – so I always thought I was doing good to break even. Turns out, I was not getting the best deal and I hope the below helps you to find a better card as well.

“Gas Rewards” are big buzzwords in the credit community in the US. This works to our advantage overseas because we pay twice as much for gasoline here than what we would in the States – so your gas rebates are twice as much – but for those of us lucky enough to get a VAT rebate, we are effectively getting refunded what amounts to a little over 4% on net gas purchases. Admittedly my college math consists of “Math for Liberal Arts Majors” but I’m pretty sure that’s a lot better than paying a 14% fee on your net gas purchases.

If numbers make your eyes glaze over skip this paragraph – but if not check out this personal example: ACA tells me I spent $853.64 (gross) on gasoline in June of this year. They took 7% of the gross (or 14.36% of the net) and charged me for $59.76 in fees for that month. If I used my Capital One card that offers 2% back on gas purchases, Capital One would have paid me 2% of the gross (or roughly 4.1% of the net) which would have put $17.07 in my pocket, just for that month. Projected over 12 months - instead of paying $717.12 per year for the use of a card, I could be getting back $204.84, just for gas purchases – to say nothing of the amount I save on foreign currency transaction fees and 1% back for everything else I buy. Caveat - This will not make you rich, but it might make you feel better when you fill up your tank!

Finding a credit card that gives you the most back can be tedious and time consuming. I’d suggest first checking with your bank(s) and then ask friends and colleagues what they use, and of course – shop around. I found the one I’m using now because a colleague in my office had that card and mentioned he was never charged an international transaction fee (which I really thought was standard practice) – So that’s where I started. After a thorough grilling of their customer service rep (who still gave me bad information), I ended up with Capital One’s No-Hassle Cash Rewards Card. Frankly the card’s name is misleading (at best – customer service is horrible), but overall the deal on gas and groceries is as good as anything else I’ve found – at least for me and my spending habits.

You have to read the fine print with every single credit card though – Chase has a MasterCard that pays you 5% back for all purchases at a BP Station which could be an awesome deal, but the currency transaction fee is 3% so it’s no more advantageous than most 3% reward cards – and you can only get the big cash reward at the BP Station which means you have no choice where to buy gas. Plus the fine print says “at participating stores only”, so what are the odds that the BP station in Ursynow is a participating station? Pentagon Federal Credit Union has a card that gives you 5% back for gas purchases (which again, would be awesome) but only for purchases made “at the pump” and not inside at the register – not applicable at all to us overseas so that would be a not-so-great deal.

There are an emerging number of cards that give you rebates on gas and groceries. That “No Hassle Cash Rewards” said they offered 2% cash back for groceries as well and to test that I went to nine different grocery stores in Poland and the Czech Republic, a military commissary in Germany and our ACA commissary. I was surprised to learn that 6 out of 9 stores are listed properly to get the premium rebate of 2% back. It seems Mokpol Stores, the API Delikatesy in Konstancin and the ACA commissary are not listed as grocery stores with Mastercard, but you still get back 1% - which because they don’t charge a foreign currency transaction fee, makes it okay to me.

A final note – sometimes it never hurts to ask about additional discounts from your credit card company. Capital One will give extra discounts to active duty military like a reduced interest rate, no cash advance fees no annual fee and no late fees – all you have to do is ask. I don’t know if they would extend the same benefits to FSO’s overseas, but it still wouldn’t hurt to ask. Of course it takes a little common sense here – USAA isn’t going to give you a military discount and the State Department Credit Union probably isn’t impressed that you are a diplomat working overseas – but Chase might be… You never know unless you ask.

All of the above sounds daunting, but I’ve gotten up to 1,000 bucks back from a single card before and that’s kind of nice when it happens. It’s just like VAT receipts – day to day its small potatoes – year to year its a healthy chunk of cash.

So – now that you know which cards charge the most for currency transaction fees and you know what to look for in a card that pays you back, look around and see what’s out there. I had this strange loyalty to my USAA MasterCard for years thinking that I owed them my business. When I realized they had been offering lots of deals and incentives to my wife for her to use her credit card, but not to me, who actually spends money I saw that relationship for what it is – just business. Getting a card with a behemoth company like Capital One doesn’t feel so dirty when I’m getting money back every month!