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Foreign Transaction Fees Are an Endangered Species

Foreign Transaction Fees Are an Endangered Species

Last week, American Express issued a news release announcing that, "towards the end of the first quarter of 2011," the company will eliminate the foreign currency transaction fees for U.S. consumer and small business cardholders who make international purchases with their Platinum and Centurion cards.

Currency conversion fees have long been a standard feature of charge, credit, and debit cards. The fees range from 1 to 3 percent, with 3 percent the de facto industry standard.

Here, for example, is the relevant verbiage in the cardholder agreement for Citibank’s Simplicity card:

Transaction Fee for Foreign Purchases. The pricing information table shows the amount of this fee (3 percent of each purchase transaction in U.S. dollars), which is a percentage of the U.S. dollar amount of the purchase. We add this fee for each purchase made outside the U.S., whether made in U.S. dollars or in a foreign currency.

In other words, when you use your credit card to purchase a Hermes handbag from that snappy little boutique along the Champs-Elysees, the purchase price in Euros will be converted into U.S. dollars, and that amount, plus a 3 percent surcharge, will appear on your next statement.

What did the card issuer do to earn the extra 3 percent? Certainly it didn’t incur any extra costs that are being passed along to the consumer. Can it be justified as a convenience fee? Perhaps.

In any case, American Express’s move is part of a developing trend among card issuers to put the fee to rest, at least for select sub-categories of cards.

Chase is leading the way here, now offering several of its travel-rewards cards — those linked to the loyalty programs of British Airways, Hyatt, and Intercontinental — with no currency conversion fees.

And Citi recently announced that its new ThankYou Premier and Prestige cards — with annual fees of $125 and $500, respectively — will be free of conversion fees.

The above-mentioned cards are among the priciest in the market. American Express’s Platinum card carries a hefty $450 annual fee; and the company doesn’t disclose the fee for the Centurion card, but it’s known to be much higher. That might suggest that card issuers can only afford to waive the conversion fees on their higher-profit cards.

That argument unravels, however, when we add Capital One to the list. Capital One has long issued credit cards with no conversion fees, and its travel-rewards card, the VentureOne Rewards card, comes with no annual fee as well.

Ultimately, consumers will decide which credit cards deliver the best value for their needs. But for anyone traveling overseas, a card that saves 3 percent on every transaction has a clear advantage — both in financial and goodwill terms — over comparable cards that continue imposing conversion fees.

If I were in the business of issuing credit cards, I would choose to be a leader in rescinding these fees — and not just for my high-annual-fee cards.

Reader Reality Check

How do you feel about paying an extra 3 percent for overseas purchases?

Do you have a strategy for avoiding or mitigating such surcharges?

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  • GerryN

    I use JCB for purchases overseas.

  • Richard

    I switched my bank to Charles Schwab for exactly this reason. Schwab doesn’t charge foreign transaction fees, and refunds ATM usage fees as well.

    Maybe AmEx can do this for the Starwood card, too. That would be helpful

  • john dettoni

    nothing but avarice by the banks — no cost to make the switch from foreign to us $ but still they charge; what next? charge a fee to walk into the bank to cover janitorial services?

  • Bryan

    Chase has just become the lead card for my traveling expenses – sorry Citi and B of A, you lose.

  • Mike

    I rarely use my credit card overseas anymore due to the fees. I try to get sufficient money from an ATM to cover the expected costs of the trip (up to the limit) and use cash. Of course, I am not buying Hermes bags…..

  • Brad

    I have said “no” to dozens of credit card offers recently. I ask about the foreign currency conversion fee. When they say there is a fee I tell them I have a Capital One card with no fee. Why would I want to pay another ridiculous fee that costs the credit card company nothing? This simple issue tells me how customer friendly a company is, or whether they are just money grabbers.

  • F. McCaffrey

    I was charged a foreign trans fee for the US Virgin Islands. I think that is wrong.

  • Charlotte C

    QUESTION: I have a PenFed card that also advertises no foreign transaction fees, but am still charged 1%. When I’ve called to question the charge, I’m told it’s not their charge, but VISA’s; they said that many banks add a charge onto the VISA charge, adding up to 2% or 3%.

    So my question is for those of you who have had Capital One’s Venture Reward Card for a while and used it overseas: Are you still charged the 1% VISA fee?

  • czrooster

    I have used capital one for years… no fee. Makes for easy expense reports as well.

  • maryb

    I applied for a Cap1 card two years ago when I was charged a transaction fee for a Viking River Cruise. The limit was 2000 which was a problem when we were stranded in London due to volcano. Recently ordered another Viking trip and they gave us a %3 discount for cash transfer instead of credit payment which solved the transfer fee problem nicely. We have a Chase Freedon card which does charge %3 trans fee but has %5 rewards. Cap1 recently increased our limit to 7000 which will be fine for us.

  • Nils

    I just found an iPhone app that let’s you know exactly what fees your banks charges for international purchases : Tell it what cards you have and it will tell you the exact USD equivalent, fees included… nice!

    Starting today, I won’t be going abroad without it.

    It’s called Wallet Dilemma :

  • Howard

    I have a child doing Study Abroad and got a Capital One card for this reason – plus, to add some security, I got a card with her picture on it. We’ll see how it works.

  • Mickael

    I use an iPhone app that converts currencies and adds the fee your bank charges : Wallet Dilemma

    There seems to be a lot of cards in the database…

    It’s nice and useful !

  • teepee

    Just ordered a CapitalOne card specifically for an upcoming long vacation abroad. Who cares if I ever use it after that? I’ll have saved a bunch on those transaction fees.

  • Don S.

    I’ve been using a CapitalOne card for overseas purchases for years. In addition to no transaction fee I receive a 1% rebate. I feel that the 3% charge by most credit card issuers is unconscionable!

  • Michael Elmer Hartmann

    I’ve been living and working overseas for 15 years with UN DPKO and agencies and US projects. Outside the US I use ONLY Capital One Visa (no fee plus 1% back) ALWAYS here. In the US I use that and the AMEX Starwood, for the points as well. People need to vote with their brains and feet. Might have applied for Chase but don’t want $85 annual fee in 2nd year.

  • J Cam

    I nabbed the Schwab Invest First Card (now FIA something something) when it was still available. I have been enjoying no international transaction fees and 2% cash back for years now. Nice to be ahead of the game…

  • AF

    Glad to read that there are other cards out there that don’t charge a foreign currency transaction fee. The old Schwab card, now FIA, is being sold to Bank of America and will most likely have nonfriendly terms. Drat!

  • David W

    I too had the The schwab card , but now its bank of america and is no longer paying 2% cash – what is the best card to get to replace it?

    I nabbed the Schwab Invest First Card (now FIA something something) when it was still available. I have been enjoying no international transaction fees and 2% cash back for years now. Nice to be ahead of the game…

  • John

    Here’s a real rip of. American Express Canada charges foreign transaction fees to Canadian card holders. They convert the foreign currency to US.Dollars first (with mark up), charge the 3% fee and then charge the conversion rate into Canadian dollars. I have asked why everything is converted to US dollars first, and not straight to Canadian dollars, and their answer is “that’s the way it is”!!!!
    Do they do that with every country round the world? I think not. So, I don’t use my Amex card overseas.

  • PhilW

    I’ve had a corporate Visa card that charges foreign transaction fees if the “merchant” is foreign, even if the transaction is in US$. I attended a conference in the US, paid for it in US$ but the organization is based in Europe, so I was charged a foreign transaction fee. I protested that there is no way for a card user to know where every company is headquartered, but got no satisfaction. Needless to say, I use that card as little as possible.