Credit Card Fees and Currency Concerns – Ask Alex – Travel Question Wednesdays

Ask Alex - Travel Question Q and A every Wednesday

This post is part of the Ask Alex, Travel Question Wednesdays weekly series. To see previous questions click here.  To submit your own; tweet it to @AlexBerger, ask it in a comment on this post or send it in by e-mail.

A quick introductory note – When I began authoring VirtualWayfarer in July of 2007 I never expected that I’d still be blogging on travel, adventures, study abroad and everything that goes with it nearly five years later.  Over the years I’ve had a lot of questions and luckily my friends, network, and more than a few random strangers have gone well out of their way to answer those questions. While I still find myself asking questions on a regular basis I’ve found that I can also pay it forward as a resource for friends, my readers, and strangers alike.  In an effort to share what I’ve learned from my various adventures I’ve launched Travel Question Wednesdays. I’ll be answering one reader-submitted question every week.  You are all encouraged to submit, and all past questions will be archived and available as a resource for readers of this blog. I’m going to take a very open approach to the topics I’ll cover, so feel free to ask me just about anything , just keep it somewhat travel related.

This week’s travel question is from Felice D. she asks,

Q. “Clarify the best way to get and spend other currency: credit union card? no exchange fee but processing fee? bank card? atm? pay with credit card? cash? and….how to recoup VAT sensibly”

A.p2 – I’ll start with your VAT (Value Added Tax) question first, as it’s the hardest to answer. Unfortunately, it’s not something I have a lot of experience with or have been able to find a good resource for. The way I travel most of my expenses are not eligible for VAT refunds. The process for claiming VAT also tends to vary widely from country to country and is dependent on the type of travel you’re doing. VAT for tourism and personal travel is different than VAT reclaim options for business travel. One of the best writeups I’ve found is tailored to Italy but should offer insights for reclaiming VAT in most places. Head on over and check out WhyGo Italy’s “How to get a VAT refund in Italy” post. On the flip side if you’re a business traveler one useful guide I tracked down is Deloitte’s European VAT refund guide 2011.  At the end of the day you’ll need to spend some time running a few web searches on the specific VAT policies of the country you’re visiting.  Consider how obnoxious the process is (eg: Italy) and how high the threshold is (eg: Denmark’s ~$50 minimum per shop). Also keep in mind the items that qualify for a VAT refund and if it makes sense to pursue.  In most cases you’ll probably find that it’s not worth the hassle.

A.p2 – Circling back to the first part of your question – there are a lot of different options for converting your cash to a foreign currency.  Which is right for you will depend heavily on the nature of your financial situation.  Different banks charge significantly different fees.  The fee structure also tends to vary between Checking/Savings and Credit Card accounts. I’ll answer these questions tailored to US bank accounts, but the advice will be similar for international readers as well.

When using a Credit Card abroad it is not uncommon for many users to get hit by 2-4 fees simultaneously.  For Checking/ATM withdrawals these usually come in the form of an ATM service charge for out of network use (as much as $6 per bank) and a currency exchange fee (often 3%). When using your Credit Card abroad many charge 3% per transaction, while many vendors will also charge a point of sale surplus charge of up to 3%.  Never use your Credit Card for a ATM cash advance abroad, only use your Checking/Savings cards at ATMs while traveling. Also, for fraud prevention reasons I suggest only using Credit Cards (not debit cards) for point of sale (non-ATM) purchases.  Despite how expensive the ATM/Credit Card combination is, it’s actually often the cheapest option and the one I prefer.

Luckily, if you’re smart about it you can cut many of these fees out. Unfortunately, it may require kicking your bank or existing credit card to the curb.  FlyerGuide maintains a fantastic list of different bank’s and their card fees. Different cards provided by each bank will also have different fees. For international travel CapitalOne has made a reputation for itself by waiving the 0% international transaction fee on its cards. This in turn has started a trend which is being duplicated by some of the other banks.  For low-fee, or waived-fee ATM use abroad, you’ll likely have to go to a Credit Union or carry a large balance in your accounts. While this can cut the fee, it can also limit where the card can be used, so do your research ahead of time.

I suggest avoiding the use of traveler’s checks. While they can still be useful in some limited situations, the general consensus within the community is that they’re typically far more hassle than they’re worth.

Similarly, avoid currency exchange booths whenever possible.  Not only do these tend to charge obnoxious fees, they also will give you extremely bad exchange rates.  It’s not uncommon to see people leave 6-10% of their cash value at the currency booth when using these vendors.  Regardless of the various promises they may make or claim.

Money wires tend to be extremely expensive.  Unless it’s an emergency you’ll want to avoid these wherever possible.  If absolutely necessary explore online services designed as disruptors such as PayPal and its competitors.

Another option is to purchase your currency before your trip. This can be done through your bank, or a third party and is usually relatively affordable. Unfortunately, it also creates a huge problem for travelers traveling over an extended period of time or with healthy travel budgets.  If you expect your trip’s cash based expenses to be more than $1,000 USD (which is probably conservative for most of you), keep in mind that you’ll be stuck carrying that money during your trip.  If you get robbed, lose a bag, or somehow are separated from that currency you’ve lost far more than the 3-5% max you might have paid using a carefully selected Debit/Credit Card combination. For this reason I almost never travel with more than $200-300 USD in local currency on me (and usually have far less on my person).

Ultimately the best approach will also depend on the region you’re visiting.  Keep in mind that different banks and card services (MasterCard, Visa, etc.) are accepted to varied degrees from country to country.  Similarly, your cash will go much further in some countries than it will in other’s requiring fewer ATM withdrawals.  The level of crime in a country is also a key factor when deciding how much money you should keep on your person.

Hopefully this helps you as you prepare for your next trip.  Did it lead to a more specific question?  Feel free to ask in a comment below.

Please keep in mind that the above are general suggestions based on my personal experiences and research, not financial advice.  The material covered in this post is constantly changing, so make sure to do your own research using what I’ve shared as a foundation and a baseline to help you in the process.

Felice, thanks for a wonderful question!  To my readers – have a question of your own?  ASK IT!   Want to see previous questions? click here.


Travel Tip – International Credit Card Fees

It’s something you don’t hear talked about regularly.  One of those little surprises that the diligent and thorough will discover after returning from an international trip as they pore over their credit card statement.

Most travel blogs and credit card companies warn you about the importance of calling your credit card company immediately before an international trip to notify them that you’ll be out of the country and that it’s acceptable to approve international charges.  What they usually don’t talk about is currency exchange fees, transaction fees, and international ATM fees – all of which add to the cost of travel.

In preparing for my upcoming trip I made a few calls and did a bit of research.  What I have learned  is that all banks have slightly different policies and approaches to international fees and the only way to truly know where you stand is to call and ask.  Luckily, while some of the agents don’t have the rates memorized they can pull them up and let you know quickly and easily.  Just call the service number listed on the back of your credit or debit card.

As I prepared to travel I dealt with my three providers: Citi Bank, Bank of America and Chase Bank. It’s interesting and perhaps important to note that none of the banks were willing to wave or negotiate the fees (and believe me I tried).

There are two different fee structures to be aware of.  One for international Credit Card use.  The other for international debit card/ATM use. These fees are especially obnoxious because you’re probably getting hit in 2-3 areas.

Debit Cards:

Chase told me that international use of their Visa debit cards came with a 3% currency exchange fee and a $3 ATM use fee.  Then on top of that add on whatever ATM transaction fee the international bank chooses to charge for supporting an out of network bank. Unfortunately, I failed to confirm what the use fee was for retail transactions using the Chase Visa debit card. I believe they are at least 3%.

Bank of America was a bit more thorough in providing me with a breakdown of specifics.  A Visa debit card through them results in a 1% currency exchange service fee. The gal I talked to failed to give me the specifics on their out of network ATM fee, which I assume is between $2-$4.  She did note that the  B of A fee is waved if you use one of their partner bank ATMs. Unfortunately there is no escaping the 1% conversation fee. Interestingly, she did note that they have 29,000 “Visa” ATMs and 19,000 “Plus” ATMs in Spain.  If you use your debit card anywhere besides their ATM they charge a 3% currency exchange fee for retail transactions using the Vista debit card.

The only way you can get the ATM fee waved seems to be if you tie it to a rather large bank account. Definitely not an option most 20 somethings will be able to take advantage of, though it is a possibility for families or retirees looking at traveling.  You might also be able to leverage a business account to get the fees waved.

Credit Cards

For convenience reasons when traveling in Europe, I prefer to use either Visa or MasterCard. Unfortunately, Discover isn’t accepted internationally,  and AmEx  seems to have significantly less coverage.  I highly recommend researching what cards are most commonly accepted in the region of the world you’re planning to visit.

In calling, I found that both Bank of America and Chase set their Credit Card transaction fee at 3% on every transaction for their Visa cards.  Contrary to some of the material I’ve read on the web, the 3% fee seemed to be fairly common across the banks I talked to when dealing with Visa cards.  Again, despite raising a considerable fuss about the issue, neither bank was willing to adjust the rate.

I was able to confirm that B of A and Citi both place a 1% transaction fee on their MasterCard credit cards. While not positive, the way the B of A representative referred to the fee it’s set by MasterCard.  Though it’s also probably subject to the individual credit card/bank contract.

My experiences seem to line up fairly well with the following survey done by which found:

How do the major credit card issuers stack up? Below are the international transaction fees from each issuer (for banks that issue Visa or MasterCard branded cards, these numbers include the Visa or MasterCard fees):

  • Capital One: 0% transaction fee. (Capital One not only doesn’t impose its own fee, but it also eats the 1% fee that Visa or MasterCard impose.)
  • Discover: 0% transaction fee
  • American Express: 2% (Increasing to 2.7% January 1, 2009)
  • Pulaski Bank: 2%
  • Barclays/Juniper Bank: 2%-3%, depending on card
  • Bank of America: 3%
  • Chase: 3%
  • Citibank: 3%
  • GE Money 3%
  • HSBC: 3%
  • U.S. Bancorp (U.S. Bank): 3%
  • Wells Fargo: 3%

I prefer using a debit card for cash withdrawals over currency exchangers or travelers checks, and a credit card for the lion’s share of my other purchases.  For this trip I’ll use my 1% cash back MasterCard which – when the dust settles – should negate the 1% fee they’ll be charging on every purchase.  A side note: Don’t assume that airline miles cards have better travel rates.  From what I’ve seen they’re treated exactly the same as any other card…so as much as it may pain you, you might be better off leaving the Mileage card at home.

Tips, suggestions or additional ideas? Please share them in a comment form below. Was this post useful?  I’d love your feedback.