To print article, click Print on your browser's File menu. Go back   Analyze your spending Personal finance bookshelf Track your financial affairs here Shop for money management resources Do your taxes online Find It! Article Index Fast Answers Tools Index Site map Recent articles by Bankrate.com: • Time to junk energy-sucking appliances?, 8/22/2005 • Top 10 priciest colleges and the cheapest, 8/17/2005 • Employment strategies for 50-somethings, 8/11/2005 More...		The Basics The hidden cost of using credit cards abroad Credit card companies and banks often help themselves to your money when you charge purchases in other countries. Here's how to fight them.  By Bankrate.com Are you being overcharged for purchases made overseas? Your credit card company is making a killing off the money you spend on your foreign vacation, and you might not even know it. This extra profit is called a "foreign currency conversion fee," and it means you could be paying up to 3% extra when you make an overseas purchase with a credit card. Of that, 1% goes to the Visa or MasterCard networks, which charge a 1% fee for converting your foreign-currency purchase into American dollars. Find a loan that's right for you at the Loan Center A fee by any name On April 1, Visa replaced its 1% currency-conversion charge with a 1% "transaction fee." MasterCard plans to start charging the same transaction fee starting Oct. 1, replacing its current 1% currency-conversion charge. No matter what you call it, it's a good deal. Changing your money in almost any other manner will probably cost a lot more. But many credit card issuers and banks are cashing in by adding up to a 2% charge on top of that 1% -- without doing a thing to earn it. "Banks have been making a profit off their customers for a long time, while providing no service," says Linda Sherry, of Consumer Action in Washington, D.C. "Visa and MasterCard are doing all the work; it's simply pure profit for banks." Ed Perkins, syndicated travel columnist and author of "Business Travel When It's Your Money," agrees. Related news and commentary on MSN Money • Don't let identity thieves ruin your trip • How to get luxury perks for your travel buck • Fly on a whim -- and pay less • Rental car rip-offs: A survival guide • Globetrotters, make sure you're covered Gouging? "People who travel to foreign countries are outraged by this charge. It's pure gouging that credit card companies know they can get away with," he says. Bankrate contacted four credit card issuers -- Bank of America, MBNA, Citibank and Chase -- to get an explanation for the additional charge. All refused to explain the reason for the charges. Few banks actually list currency-conversion fees on credit card bills. Most banks add the conversion fees into the transaction prices listed on customer bills -- never actually showing customers the rates they charge. The charge varies from card to card, but major credit card issuers such as Citibank, Bank of America, J.P. Morgan Chase and MBNA charge 2% on overseas purchases. Add that to the 1% Visa and MasterCard charge for the actual conversion and you will pay an additional $3 for every $100 you spend. So that $300 pair of shoes you bought in Milan, Italy, will show up on your statement as $309 because Visa or MasterCard got its 1% cut, charging you $3, while your credit card issuer added its 2% by tacking on $6. That failure to disclose is starting to change due to recent lawsuits brought by consumers who say that their credit card company failed to adequately disclose currency-conversion fees on statements. Some credit card companies have now issued statements identifying the currency-conversion fee and telling how much their cardholders will be charged. "I think the breakout of the fee could have an impact on the market," Sherry says. "Consumer outcry could cause some banks to lower their fee or do away with it." Plastic advantage But until that happens, shop around for a credit card and ask questions until you're sure your selection doesn't charge a currency-conversion fee on top of the Visa or MasterCard charge. Perkins says that some credit cards are going a step further, charging you a currency-conversion fee on items already listed in U.S. dollars. "You can buy something from your home in the U.S. from a merchant overseas, who has already converted your purchase into U.S. dollars, but some credit card companies will still charge you a conversion fee. It's just ridiculous." Some overseas merchants now offer to convert your bill into your home currency. This is called "dynamic currency conversion" and it means the merchant -- and not your credit card issuer -- is converting the currency. If you think you are getting a deal because there will be no currency-conversion charge, think again. The merchant is converting your money for you, charging a percentage for the service, and passing along that charge to you through the merchandise. Perkins warns travelers to be very wary of dynamic-currency conversion. "Right now, it's not a good deal," he says. "Overseas merchants can gouge you by charging 5% or 6% to convert your purchase into U.S. dollars. Add the 1% Visa and MasterCard charge, plus what your credit issuer charges and you are taking two hits instead of just keeping your purchase in local currency and taking one hit from your credit card." Perkins says that, since there are no set dynamic-currency-conversion charges, many merchants take advantage of gullible travelers. "Visa and MasterCard are also doing their share of gouging by charging you for something you already paid for, just because they can." Guidance So, what is the best way to avoid the charges? Sherry recommends pre-purchasing airline tickets, hotel rooms and rental cars before leaving the United States to avoid the charge. "I think a lot of consumers get hit hard when they dine out and shop. That part is unavoidable, but most everything else can be purchased before you travel overseas." Also, some banks that charge 2% conversion fees do not charge for purchases made on a debit card. Debit cards are just as handy as credit cards when making purchases overseas. Some small banks and credit unions refrain from charging conversion fees, Perkins says. Here are more money-saving tips for your overseas vacation. Look for credit cards with no currency-conversion fee. Travel with stored-value cards issued by Visa, MasterCard and American Express. These have upfront charges but will save you the conversion fee on each purchase. Using a bank or debit card is often the best way to go, because many do not charge conversion fees. Although travelers' checks are popular, you will be charged a fee (usually around 7%), plus youll pay on the conversion. Shop around for the better exchange rates and lower fees. Don't convert money from one currency to another more than once. Don't exchange money at airports or hotels. They charge the most. The bottom line Most experts agree that despite the conversion fees, using plastic is still the cheapest way to make purchases abroad, especially considering the hefty charges on travelers' checks and money exchanges. "Exchange rates offered by credit cards are better because exchange rates secured by Visa and MasterCard are based on wholesale rates offered to large banks and corporations rather than the retail rate offered to consumers," says Jessica Iben of Chase Card Services. "Credit cards also provide increased protection on any card purchase since card members are never liable for unauthorized purchases." Perkins agrees: "Credit cards may not be the best deal they used to be, and we hate to be price-gouged, but paying with plastic is still the smart way to travel overseas."
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