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Survey: More cards bid farewell to foreign transaction fees

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Consumers looking for a credit card that won't tack extra fees onto their purchases when traveling abroad now have more than 60 cards to choose from, according to CreditCards.com's 2015 foreign transaction fee survey.

A review of 163 consumer cards from 12 of the biggest U.S. card issuers reveals that while most consumer cards -- 103 out of 163 cards -- still charge consumers a  foreign transaction fee for each overseas or foreign bank routed purchase, the number of cards that don't charge such a fee is on the rise. Additionally, while foreign transaction fee-free cards used to be reserved only for elite cardholders and frequent travelers, issuers have added more widely accessible cards to the no-fee card pool.

Card issuers slowly ditch foreign transaction fees

(See chart: Credit cards and their foreign transaction fees)

Here's what the 2015 survey found:

  • Major issuers now offer 20 more foreign transaction fee-free cards since the last survey in 2012.
  • For cards that include a foreign transaction fee, the most-common charge is still 3 percent. The lowest foreign transaction fee found in this year's survey is 1 percent -- charged by USAA on all of its consumer credit cards.
  • Four issuers -- Discover, Capital One, HSBC and Pentagon Federal Credit Union -- do not charge foreign transaction fees on any of their consumer cards.
  • Despite the fees associated with using plastic outside the U.S., the benefits, convenience and security of using a card while traveling abroad outweigh those extra costs.

Fee structure holds steady
Foreign transaction fees -- also known as currency conversion fees -- are added to a purchase when a cardholder uses a card overseas or through a foreign bank. Those fees typically range from 1-3 percent, depending on the issuer and co-branded card partnership.

This year's survey found the most common foreign transaction fee to be 3 percent, 1 percent of which is a pass-through fee from MasterCard or Visa and an additional 2 percent charge from the card issuer. Of those cards that do charge a foreign transaction fee, issuers have not changed that fee structures since 2012.

While five out of the eight foreign transaction fee-charging issuers use the 3 percent fee model, three issuers do things a little differently.

American Express, for example, still charges cardholders a 2.7 percent fee. The company declined to comment when asked for an explanation. USAA only passes on the 1 percent fee from the card networks and does not add on any additional charges itself. U.S. Bank charges a 2 percent foreign transaction fee on nearly all of its cards, with the exception of a few co-branded cards that charge 2.8 percent, but also declined to elaborate about these fee charges.

A handful of other cards also charge foreign transaction fees that differ from the norm. Bank of America's AAA Member Rewards MasterCard charges a 2 percent fee; Virgin Atlantic's MasterCard charges 1 percent. These differences are due to those card's co-branded partnership agreements, according to Bank of America spokeswoman Betty Riess.

More cards now foreign transaction fee-free
Card issuers have added a number of no foreign transaction fee consumer cards to their lineups since the last time CreditCards.com conducted this survey in 2012.

Since that time, the eight issuers that charge foreign transaction fees on at least some of their consumer cards have increased the total number of fee-free cards from 21 to 38.

Barclaycard U.S. in particular has added quite a few more foreign transaction fee cards to its lineup, now up to 10 cards out of 25 from just two in 2012. Chase also offers a large portion of cards without foreign transaction fees, allowing consumers to make fee-free purchases with nine of its 13 cards, many of which are travel rewards cards.

On top of those new additions, four issuers -- Pentagon Federal Credit Union, Capital One, Discover and HSBC -- have continued to keep all their consumer credit cards foreign transaction fee-free, many of which are general purpose reward cards.

This trend of issuers slowly straying away from foreign transaction fees is one that will strengthen if consumers continue to take advantage of these fee-free offers, according to Bruce McClary, spokesman for the National Foundation for Credit Counseling.

"A lot of the credit card issuers are trying to find ways to add value to their products," he said. "Just like how some are adding free credit scores to monthly statements, doing away with foreign transaction fees can be an attractive cardholder perk. If that is something that drives people to their doors, then it may become a trend and be picked up by others in the industry."

Consumers have a variety of no-fee options
Foreign transaction fees are still commonplace among U.S. Bank, Wells Fargo, American Express, Bank of America and USAA cards. USAA is the only issuer to charge a foreign transaction fee on all consumer cards, but again, it only passes the 1 percent network fee along to cardholders and does not tack on any additional charges. USAA also waives foreign transaction fees for one year for all deployed service members.

With 60 cards with no foreign transaction fee between all the issuers, consumers looking for a cost-efficient, travel-friendly card have many options. Many of the no-fee cards are tied to specific travel reward programs, but others -- such as the Discover It Cash Back card or the QuicksilverOne Rewards card from Capital One -- are general-purpose credit cards that are available to average-to-good credit consumers even after their trips are over.

[I]t has certainly gotten easier to find a card with no foreign transaction fee and in this day and age, so it's downright silly to pay an extra 3 percent to a credit card company. It's a boondoggle, basically.

-- Tim Winship 
FrequentFlier.com 

Cardholders who may be loyal to an issuer that favors foreign transaction fees will have at least one or two fee-free travel cards to choose from. Bank of America even offers a no-fee travel rewards card for students, which would work well for a young adult studying abroad.

"Issuers are definitely moving in the direction of getting rid of these fees, especially among cards marketed specifically for travelers," said Tim Winship, travel rewards expert and editor of FrequentFlier.com. "And it has certainly gotten easier to find a card with no foreign transaction fee and in this day and age, so it's downright silly to pay an extra 3 percent to a credit card company. It's a boondoggle, basically."

Credit cards still best for foreign travel
Regardless of whether your card issuer charges additional fees for making foreign purchases, a credit card is still the best payment method to use when traveling.

"Credit cards are more secure, it's that simple," McClary said. "If it's lost or stolen, there is a limit on your liability for fraudulent purchases. If at all possible, I would recommend avoiding the use of a debit card overseas and use a credit card that carries special protections again fraud."

This is especially true if your credit card is equipped with EMV chip encryption technology. This year's CreditCards.com foreign transaction fee survey found that all 12 issuers are giving new cardholders chip-and-signature equipped cards and are slowly migrating all existing cardholders to chip cards over the next year.

"Ask your card issuer if they do have a chip-and-PIN option, or at least chip-and-signature," McClary added. "The best thing consumers can do is ask for the product that is most useful when you travel abroad."

If you don't yet have a travel-friendly card, you have quite a few foreign transaction fee-free options to choose from.

If a card without a foreign transaction fee comes with a rewards program, that's just icing on the cake.

-- Bruce McClary 
National Foundation for Credit Counseling 

"Look for low interest rates and no annual fees when shopping around," McClary said. "If a card without a foreign transaction fee comes with a rewards program, that's just icing on the cake."

More importantly, consumers should look for a card with a rewards program that fits in with their existing travel and spending habits, according to Jenny McIver, travel blogger and author of Round the World in 30 Days. 

"Think about what your favorite hotel chain is, what airline you fly with the most, those sorts of things," she said. "Corresponding cards will earn you the most back. It really depends on what your travel preferences are and where you want to earn your points, but I would pick one airline and one hotel card and stick with those."

If you're happy with the cards in your wallet and not actively looking for new plastic, but are planning a trip abroad in the near future and don't have a foreign transaction fee-free card, you'd be wise to apply for one.

"I'm a really big proponent of keeping things simple and having as few credit cards as possible, but I would consider getting a no annual fee, foreign transaction-free card to avoid paying an extra 3 percent or so," Winship said.

"Especially if it's a longer trip, the fees are really going to add up, look for a no-fee card," McIver said. "If you don't, you could easily end up with a few hundred dollars in fee charges in only a week."

Survey methodology
CreditCards.com surveyed 163 consumer credit cards (excluding small business and secured cards) from 12 major U.S. credit card issuers using website terms and conditions documents and calls to issuer representatives to confirm foreign transaction fee details. The survey was conducted March 16-27, 2015.


Credit cards and their foreign transaction fees


 

 

See related: Apple Pay fees could upset the rewards cart, 11 credit card travel insurance benefits

Published: March 31, 2015


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