Using Credit Cards Overseas: Foreign Currency Fees…What a Pain in the gas!

Not too long ago I received an invitation for an American Express Platinum Card. I’ve been an Amex Customer for years and apparently all my good payment history has paid off in the form of an offer for a snooty credit card with a $450 annual fee. After the ego trip wore off, I thought to myself “Who in the world would pay $450 in annual fees just to carry a credit card?” Then I got my first gas-card bill from the ACA with the new fees... For my family, at almost 60 bucks a month (at least the first month), I would pay about $717 over the course of the year in credit card fees. Somehow the $450 platinum fee looks like a bargain.

So I turned in my Shell card and started looking for an alternative. I set out with two simple goals: Avoid paying fees and find a card that gives me the most money back. What I discovered was the way I had been using credit cards overseas was not ideal, and along the way I was reminded of some little hidden charges that sneak up on those of us who use them outside the US. This article is focused on some fees you may not be aware that you’re paying and next issue’s article will be focused on finding the right credit card that pays you money back.

Almost all credit cards charge sort of a foreign currency transaction fee (unless of course you’re making purchases in your own currency – in your own country) but I found that some companies hide the fees in your account’s paperwork, which seems unethical. If you’re not positive the amount you’re paying you should ask, and then you should double check to make sure you’re not getting cheated. The most you should be paying for a currency transaction fee is 1% because that is the baseline by Visa/MasterCard. Anything more than 1% is going straight to your bank’s pocket.

Here’s a quick list of some major banks and their currency conversion rates:
Capital One 0%**
Discover 0% - Not Generally Accepted Overseas
Wachovia 1%
Washington Mutual 1%
SDFCU 1%
Pentagon/Navy FCU 1%
American Express 3%
Bank of America 3%
Chase 3%
Citibank (Citi Card) 3%
HSBC 3%
U.S. Bank 3%
Wells Fargo 3%

**I was real skeptical because Capital One uses a different method for computing exchange rates than other cards, but through my own research (with the help of the commissary) I’ve found they do have the best exchange rate – hands down.

While on the topic of foreign currencies – this was hard lessons learned: I have found in a few places in Warsaw (recently Go Sport and Oh Sushi!), they may offer to charge your credit card in Polish Zloty or USD (in some cases Euro). You should always, always, always choose Zloty (or whatever the host-nation’s currency is). Anything else and you will pay twice for conversion – You will pay a less-than-favorable conversion rate by the local merchant’s bank, and then your bank will charge you a fee for making a purchase (even in dollars) outside the US. The only exception overseas I’ve found is on a military base where you don’t pay any fees when the currency is dollars.

Here are some questions you should know the answers to – about every one of your credit cards you use overseas:

-What is the total rate charged for a Foreign Currency Transaction fee? Anything above the 1% charged by MasterCard and you can do better.
-What exchange rate are they using to convert currencies? They should be using the International rates published in the Wall Street Journal (anything else is worth double checking).
-Is there a cash-back program and is it applicable to purchases made in other currencies?

Three percent might not sound like that much to pay in currency fees, but since most of us would be thrilled to get a 3% raise in January I think it’s worth saving that money. Bottom line – Check your current credit cards to see if they’re gouging you – If you’re paying over 1% consider getting another card. And never, ever pay more than you have to. Even for a platinum card!