As credit card issuers continue to look for additional ways to boost fee revenue in the midst of the credit crisis, consumers traveling overseas should pay special attention to foreign currency-conversion fees. Virtually every credit card charges a transaction fee for processing a purchase made outside the United States. First, Visa and MasterCard charge a 1 percent processing fee for converting your foreign-currency purchase into US dollars. And second, most credit card issuers then add fees on top of the 1 percent fee levied by Visa/MasterCard simply because they can. While credit cards are still widely accepted among travelers as the safest and most cost effective method of payment for overseas purchases, your bank may be making an extra 3 percent profit off your foreign purchases without providing any service at all! If you think this in an outrage, you are not alone.
Various companies, such as Visa, MasterCard, Chase, Bank One, and Citibank, were recently drawn into a lawsuit known as the "MDL Action", a case in which their practices involving the "setting and disclosure of markups and fees imposed on transactions made in a foreign currency or foreign country" were directly challenged. In order to avoid the expense and uncertainty of further litigation, the defendants chose to settle and set aside $336 million to pay valid claims, attorney fees and other expenses. In fact, if this is the first time you are hearing of this case, you unfortunately missed the opportunity to file a claim. The official deadline was May 30, 2008. However, don't fret because it is more important you learn how to avoid these additional costs in the future. The fees have not gone away—they just need to be disclosed in a more detailed manner.
Top 5 Tips for avoiding currency conversion fees
- The best way to avoid currency conversion fees is to shop around for cards that do not have one. Consider Capital One, who actually absorbs the 1 percent fee charged by Visa/MasterCard so you pay nothing!
- Many ATM or debit cards do not charge conversion fees, so call your bank to find out if they assess any fees for foreign purchases. In addition, do some research before you leave to determine where you can find compatible ATMs to get cash without paying a withdrawal fee.
- Always pay in the local currency. Beware of any merchant who offers to convert your purchase into dollars on the spot, because you will likely still pay the conversion fees imposed by your credit card issuer in addition to whatever fee the merchant adds to his price.
- Avoid conversion fees on big-ticket items by purchasing all your hotel and transportation accommodations through a US travel website such as Expedia.com. In addition, consider including meals in your hotel package in order to avoid racking up charges on your card while dining out.
- If traveling abroad just sounds too exhausting this year, stay home in the good 'ole USA and visit something you have never seen before. Mount Rushmore anyone?
