The Sleaze of Credit-Card Fees
|If you "charge it" in Europe, make sure you're not being charged unnecessary bank fees.|
By Rick Steves
Recently, travelers returning from Europe have opened their mail to discover they paid more for their trip than they thought they had. Over the last couple years, banks have dramatically increased the fees they charge for overseas transactions using credit and debit cards. While these fees are legal, they're basically a slimy way for credit-card companies to wring a few more dollars out of their customers.
For years, Visa and MasterCard have levied a 1 percent fee on international transactions. Recently, banks that issue those cards are tacking on an additional 1 to 2 percent. These are often called "currency-conversion fees" or "foreign transaction fees."
What if you're using a debit card to withdrawal cash from your checking account at an ATM? Unfortunately, most banks also levy fees for this service — either a flat charge, a percentage, or both. Credit unions tend to have lower fees than banks, but even they are increasingly tacking on a 2 percent surcharge.
So, how can a smart traveler avoid — or at least reduce — these fees? Here are a few suggestions:
Ask about fees. While fees can sometimes be built into the price on your statement, it's becoming more common that they're broken out as line items to help the consumer know what they're paying. Even so, it's smart to make a call before your trip to get the whole story: Carefully quiz your bank or credit-card company about what "international" fees come with using your card overseas. Even if they charged you no fees the last time you went to Europe, there's a good chance they do now. Call and ask before you go.
If you're getting a bad deal, get a new credit card. Some companies offer far lower international fees than others — and a handful don't charge any fees at all. Capital One has a particularly good reputation for international transactions (www.capitalone.com)...for now. If you're going on a long trip, do some research and consider taking out a card just for international purchases.
Avoid "dynamic currency conversion." Some merchants — capitalizing on the fact that many Americans are intimidated by unusual currencies — cheerfully charge you their prices in dollars. This seems like a nice service, but you'll actually end up paying more. Usually the dollar price is based on a lousy exchange rate (which can be set wherever the merchant likes — generally about 3 percent worse than the prevailing inter-bank rate). To make matters worse, even though you're paying in "dollars," your credit-card company may still levy its 2 to 3 percent "foreign transaction fee." Some merchants may disagree, but according to Visa, you have the right to decline this service at the store and have your transaction go through using local currency. Your transaction will then be converted by Visa or MasterCard at or near the more favorable inter-bank rate.
Online purchases can be subject to fees. If you're buying from an international Web site, you can still get hit with currency conversion fees — even if you make the transaction while in the US. You might be able to bypass fees if the vendor has a US office (in which case, call the US phone number rather than booking online).
The bottom line. Here's the best formula for saving money as you travel: Pay for as much as possible with cash, using a bank that charges low rates for international ATM transactions. Because you're charged a flat fee for each time you withdraw cash, withdraw large amounts at each transaction — keeping the cash safe in your money belt — reducing the total number of fees you're charged. When using a credit card, try to use a card with the lowest possible international fees, and insist that your transactions be charged in the local currency — not dollars. Then smile and enjoy your trip, feeling very clever for avoiding so much unnecessary expense.