Cashing In Q&A columns

Foreign travel, your credit card and currency conversion

It’s more expensive than ever to use plastic when traveling abroad. Fees that companies charge to use their credit cards outside the United States aren’t going away, but they have been slimmed down as a result of a recently settled class-action suit against Visa and MasterCard. If you’re headed abroad, however, you also need to be aware of a new payment process called dynamic currency conversion (DCC), which may also pad your purchase amount.

How fees add up
A friend recently used his Citi Visa to put a two-night deposit of 300 pounds on a hotel room in London. On his next credit card statement, 309 pounds would have appeared. The extra 9 pounds would have been the 3 percent foreign transaction fee. At an exchange rate of 0.49 pounds to the dollar, that would amount to $630.61. Another way fees could have appeared is if he had accepted the hotel’s offer to ring up the purchase in dollars. Then he would have seen $639.80 on the hotel receipt, a 4.5 percent DCC surcharge.  

After my friend made the deposit, he changed his mind and decided to stay with friends instead, so asked the hotel clerk to remit the deposit to his card. He was surprised when he later discovered that he was charged $36.73. This represents a 3 percent surcharge when pounds were initially converted to dollars and another 3 percent surcharge when the dollars were converted back into pounds. A Citi representative said this should not have happened.

Know before you go
It behooves you to ask what, if any, fees a merchant may be tacking on if he or she converts your purchase into U.S. dollars. It also pays to choose your card wisely and read the fine print. Here are some tips to avoid paying more than you have to:

1. While it’s a good idea to alert your credit card company before you leave the States so that fraud alerts can be activated, don’t stop there. Ask your bank what fees it charges for purchases made abroad. If you’re a good customer, you may be able to negotiate a better rate.

2. Scrutinize your receipt. If you see a purchase in dollars, ask the merchant to reprocess the bill in the local currency. This will save you 4 percent on average, possibly more.

3. Fees are in flux. Visa and MasterCard add a 1 percent foreign transaction fee whenever you use their cards outside the United States. In April 2005, Visa applied this fee to any foreign transaction, whether converted to dollars or charged in the local currency. But by June 2005, this international service assessment fee (ISA) was no longer applied to transactions where the cardholder chose to have the purchase amount in his or her home currency.

4. Try American Express. There are no DCC fees if you use this card. But you will pay a 2 percent foreign transaction fee.

5. Or try Capital One. The issuer absorbs the 1 percent fee that Visa charges. And, according to a Capital One representative, it does  not add their own fee, so you should pay zilch in foreign fees. “This is because Capital One offers a low line of credit,” says Robert Manning, author of “Credit Card Nation.” “It may not be enough for an extended, or an expensive, trip.”

6. Look for other options. Credit unions generally charge low foreign transaction fees on their credit cards.

Buyer beware
Overall, it pays to call around to compare rates. “But even if you call your bank, you may not get correct information,” says Ed Perkins, a contributing editor to “This isn’t intentional.” Fees can change suddenly, so be sure to also check your credit card statement when you return. If a charge seems too high, call to contest it and check on fees. Banks are required to disclose what they charge for foreign transactions and any change in fees. The information is usually in a credit card statement insert, not broken out in a line on the statement itself. With DCC, the only way to determine the fee a merchant is charging is to do the math.

As for Manning, he’s taking zero-percent traveler’s checks on his next trip abroad. Plus, there’s always cash.  

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