Credit Card Articles

Avoiding the Pitfalls of Currency Exchange Fees

2 August 2010 by CreditCardsCo™

Credit Card and Benefits

There are many reasons why people want to carry credit cards. Obviously they are convenient for when you want to purchase big ticket items and can't carry cash. Of course, they also allow you to pay full-price for something up front and then break it down into smaller, more manageable payments over time. Some people like the fact that many cards offer rewards or incentives that pay you back with cash rebates or other gifts. Indeed this is one of the most popular reasons that people like credit cards. There are cards that have built in services like automatic travel insurance when you use your card to make travel arrangements. You can even have convenient access to your money all over the world, if you choose.

Credit Card and International Currencies

For people who travel internationally, this is extremely important. You need to be able to pay for things efficiently no matter where you may be. If you travel for business, you might not necessarily have the time to convert your money every few weeks or so. In this case, you can actually use your credit card in any country no matter where you are from and your card will automatically convert your money. If you came from the United States and travel to Europe, for instance, your card would automatically convert your US Dollars in the local currency, which would likely be Euros. If you are originally from Japan and you are travelling to India, your card would convert your money from Yen to Rupees.

Currency Transaction Fee

This system works because the major international credit card companies, namely American Express, MasterCard, and Visa, charge a transaction fee when they have to process your foreign exchange transaction. This can be as low as one percent. If your credit card was issued by a smaller bank, they might also charge a fee per transaction, which might be closer to two percent. The total amount of fees that you pay, then, appears on your statement as a currency conversion fee. The average fee for point-of-sale transactions and withdrawals does seem to be around three percent. However some of the most premier cards in the world may charge nothing, because their high-profile clientele travel for a living and depend on credit cards to get them from one city to the next. While this is certainly convenient in terms of retail purchases, it also applies to ATM withdrawal transactions as well as cash advances from local financial merchants.

New Laws: No Change in Currency Exchange Fees

Unfortunately the recent Credit CARD Act, which stands for Card Accountability, Responsibility, and Disclosure, did not address the issue regarding credit card currency conversion fees. While it did affect, some of the extra fees that credit card companies seem to charge as well as, strangely enough, gift card policies, currency exchange fees will continue to remain as they were. Although this may be disappointing, you can still try to avoid paying these fees by understanding how they work and forming a strategy the next time you travel overseas.

Tip 1: Cash Before Leave

First of all, you can convert most or all of your cash before you leave. Yes, this can be risky, but you can also utilize things like safety deposit boxes at a local bank with the currency that you use. If you use your personal bank to do this, it might result in the issuance of fewer fees.

Tip 2: Find the Lowest Fees

Secondly, you can call each of your credit card companies to see which offer the best rates. Pack your cards accordingly and leave the rest home. You could bring them in case of an emergency if you so choose, but you will need to pay very close attention when you reach for your wallet to make sure that you use the card that will charge you the least.

Tip 3: Use Local Bank ATM Card

Another thing that you can do is to bring your local bank ATM card with you along with your credit cards. This is because you will probably have a better chance of scoring a decent rate when you withdraw from the ATM of a local bank in the country where you are travelling. Use your debit card to withdraw from your personal bank account and you might be able to avoid a few fees. If there isn't enough money in your account or it is just not in your budget to use it, you can still use your credit card. While you will probably still pay a fee, it will likely be less substantial than what you would pay if you were to use the card outright to at a retail merchant or vendor.

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