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| The Basics | The hidden cost of using credit cards abroad
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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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MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.
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