Card use overseas: Beware conversion, exchange fees
For many people, summertime offers a chance go on vacation. And for a number of these travelers, a vacation may take them to a far away place, where much of the fun comes from the thrill of discovery and exploration. But most would not dream of leaving home without their handy credit card. Although the kids may get a break from homework during the summer, it is important to do some research before going abroad with a credit card. Using a credit card while overseas is not the same thing as charging items in your own backyard. So if you are among those that plan to make credit card purchases while traveling abroad, there are some important things to consider.
First, international fees are added to purchases made overseas. Such fees mean you could end up paying as much as 10 percent more for purchases made while abroad. To begin with, your bank might charge you a 1 percent to 3 percent “foreign currency-conversion fee” for the service of converting the local currency cost of an international purchase into the U.S. dollar amount that shows up on your credit card bill. Meanwhile, the merchant might tack on 6 percent to convert the charge into U.S. dollars. The combination of charges depends on the varying rates from the card you use, the bank that issues the card, and the merchant’s policies.
The added bank fees are relatively new. Although they are now typically broken our on credit card statements as foreign currency transaction fees, most banks do not actually show the rates they charge. Unless you use a calculator, it is impossible to know what percentage your bank is charging you.
So what is a traveler to do? Before you fly, closely examine your cardholder agreement, or better yet, call you bank and inquire about the surcharges. Depending on how much you plan to charge on your credit card and how often you travel, it might make sense to sign up for a credit card that charges a lower fee or does not charge a fee at all. For example, Capital One not only does not charge an additional foreign exchange fee, it also does not pass along the 1 percent currency conversion charge that Visa and MasterCard users get hit with for all purchases made abroad. Of the other traveler-friendly credit cards, American Express charges 2 percent.
Separately, security concerns have banks on the lookout for unusual activity, which, unfortunately for overseas travelers, include purchases made on your credit card from a foreign country. With technology allowing banks to track charges more aggressively, an international shopping spree can result in a fraud alert and the subsequent denial of legitimate charges. That could leave you high and dry when your card gets declined after a few swipes abroad.
To prevent a hold being placed on your credit card account, it is once again a good idea to call your credit (and debit) card companies to clue them in to your planned trip. The companies’ fraud detection procedures will not be triggered, or if they are, your plans will already have been noted.
Another good idea is to bring along a backup credit card that you keep separate from the rest of your cards. Should anything happen to your primary credit cards, you will still have a means for charging purchases. Also, be sure to get a local collect telephone number for your bank in case anything happens to your credit card, since corporations’ toll-free 800 numbers can only be accessed from within the U.S. and Canada. These numbers are typically printed on the reverse side of most credit cards. In case your card is lost or stolen, it is advisable to write down this information (or photocopy it) and keep it in a separate location from your purse or wallet.
By taking a few precautionary steps, you can still enjoy the use of your credit card while traveling overseas. Although there are some pitfalls to be aware of, credit cards remain a great way to make purchases while traveling. Credit cards are terrific for travel-related expenses that crop up, such as restaurants, attractions, and hotel rooms. Also, the exchange rates offered by credit cards are better (and often much better) than those offered at currency exchange counters and even at overseas banks, since the rates secured by Visa and MasterCard are based on wholesale rates offered to large banks and corporations as opposed to the retail rate given to customers. And despite the added charges, using your credit card is still cheaper than paying with cash in a foreign country, as banks and foreign exchange dealers give you less favorable “consumer” exchange rates for cash and hit you with charges of their own.
Credit cards are definitely helpful to use when traveling abroad, as long as you take precautions to avoid the potential pitfalls that many vacationers experience.
Published: June 4, 2006
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