Credit cards can be a great asset when traveling because they save you from having to carry large amounts of cash. The catch is that not all credit cards are equal when it comes to paying by plastic while traveling in foreign countries. When you make a credit card purchase that isn’t in your card’s native currency, your card issuer may charge a currency conversion fee in addition to the original amount – sometimes as much as 4% of the transaction. You won’t ever see this fee, because it’s added in as part of the conversion from the foreign currency, but that’s just to hide the fact that you’re having to pay it. Credit card companies being sneaky? Imagine that. Fortunately, if you know which card to use and how to pay, you can avoid this hidden fee.
In general, any Visa or MasterCard issued by big banks like Bank of America, Chase, BankOne, FirstUSA, Citibank, HSBC, U.S. Bank or Wells Fargo will include a 3% fee with every transaction. 1% is a foreign transaction fee charged by Visa or MasterCard and usually 2% is charged by the issuing bank as a currency exchange fee, although at least one Bank of America card charges a 3% currency exchange fee for a total fee of 4%! American Express is slightly better with a total fee on 2.7% for personal cards and 2.5% for corporate cards. Discover Card will begin charging a 2% fee starting May 1, 2009 which still beats all the above mentioned banks, but they’re only accepted in North America, Central America and China (and even in those areas, I’d highly doubt they’re accepted in as many places as Visa or MasterCard).
How do you know what your bank is charging for currency conversions? Obviously it’s best to ask them yourself, especially if you’re using a card from a local bank or credit union, but for the bigger banks you can check the tables on Flyerguide.com’s Wiki page on Foreign Exchange.
Fortunately for us travelers, one bank stands out as a clear winner when it comes to making purchases abroad: All Capital One credit cards have no fees (0%) for transactions made in foreign currencies. Not only does Capital One skip the 2% exchange fee that most the other big banks are charging, but they actually cover that 1% foreign transaction that Visa or MasterCard charge. (Now that is what I call service.) Add to that the fact that you can apply for a card which gets you reward points, miles or 1% cash back with no annual fee and it’s pretty obvious that they’re the credit card company to go with for any foreign purchases. If you go with Capital One’s cash back card, this would mean that for every $1000 you spend in foreign countries, you earn $10 with instead of paying $30 or even $40 to another other credit card company (like they really need more of our money).
There are other credit cards which apparently have a 0% transaction fee, but they’re a bit more tricky to get. For instance, there’s the HSBC Premier World MasterCard, but the fact that “to qualify for HSBC Premier, you need to maintain $100,000 in combined personal deposit and investment balances” rules it out for most people. A better option appears to be the Schwab Bank Invest First Visa, which has no annual fee and actually offers 2% cash back. There’s a catch though in that the cash back must be deposited into a Schwab One brokerage account each month, so you have to open one in order to receive it.
In summary, check before you go overseas to see what your credit card company charges you for making purchases. Unless they charge 0% on foreign transactions, Capital One is the the easiest way to go.