New thoughts about those credit card charges.
 

I know there have been a lot of posts in the past about the extra 3% that most credit card companies charge for foreign transactions. Because I value my FF miles from my Citibank AAdvantage Card, I've always just decided not to worry about those charges. But upon my return this summer I started doing some comparing of my bank statements (ATM withdrawals) from Bank of America, and my Citibank Master Card charge slips.<BR><BR>I was very surprised to see that there was very little difference -- less than 1% difference in the actual charges. I mainly used Bank of America affiliated banks in Europe (BNP in France) for example so there are no charges either end for my ATM withdrawals.<BR><BR>For example. On September 30 I withdrew 300 Euro on my ATM card. The actual cost was $299.05, which makes sense as on that date the Euro and dollar were virtually equal. But on that same date, I charged 104.50 Euro on my Citibank card. That showed up as an actual cost of $104.65. I could list numerous other examples from identical dates, but the results are usually the same -- less than one percent difference of the total exchange rates between the ATM transactions and the charge card transactions. Does this mean that if Citibank is adding 3% for the transaction, they are using a different exchange rate from that of my bank -- obviously a better one?

We used BNP Paribas' ATM's also as it's affiliated with B of A; however, B of A advised that there's a $3 fee per transaction. But that to me is worth it over buying traveler's checks and losing on the exchange.

Huh? I'm confused. We specifically used BNP Pariba's because I called the national office for Bank of America and was told that there was NO charge for using an ATM there. This makes sense as my bank statement clearly shows the itemized charges for ATM use overseas. In Italy, Slovenia, and other countries where I used unaffiliated banks for ATM withdrawals, there was either a $1.25 or a $1.50 charge, but on the BNP ones there was never a charge. I also had a $1.50 charge for withdrawing at a different bank in France when I couldn't find a BNP.<BR>By the way, the same &quot;no charge&quot; policy was true between BofA and Barclay's in the UK.

The added charge is 2%. Visa or MC charges 1%, both ATM and credit.<BR>I think you are comparing Fuji Apples to MacIntosh in this case because the exchange rate fluctates daily. Sometimes it is in your favor and sometimes it is not. Unless you knew the exchange rate at the time the transaction was posted, you cannot really compare. <BR><BR>I tried to find from Visa how the exchange rate was determined. The response I got was polite but the essence of it was: (1) We are not going to tell you, and (2) Go Away.<BR>

Bob, I didn't realize that there was also the 1% exchange charge on ATM's, so I guess there should only be the 2% difference. But I assume that if I compare the ATM transactions that are recorded on an exact same date as a credit card charge (actual posting date) that I AM comparing apples to apples. <BR><BR>Yes, I got a similar response from Citibank, or else no one was willing to tell me what exact exchange rate they use. That's why I decided to do a date by date analysis of the two statements when I returned this year. <BR><BR>I guess my main point is that if the charges really aren't any different -- or as in my case less than a 1/2% difference on a particular day of withdrawing cash or charging, then it certainly makes sense to charge -- and not worry about charges for using a credit card that apparently didn't exist or were nullified by the difference in the way they figure the final transaction.

<BR><BR>Unless the fees for credit card purchases and ATM withdrawals are exhorbitant (and in my case I don't feel they are), those fees are worth it to me for the convenience of not having to deal with traveler's checks.

This is an interesting set of facts you both are posting. Do either of you know if I use my Citibank ATM in France which bank might not charge me for using the ATM (there are Citibank's in Paris but I'm wondering about Credit Lyonnas or BNP Paribas or SocGen). Any info. appreciated. Thanks!

Set of facts? It's clear that Patrick has committed the cardinal sin of actually giving some facts. Every other post on this forum is much closer to what we really admire here: &quot;I heard somewhere&quot; or &quot;somebody told me&quot;.<BR><BR>Cynically yours,<BR><BR>An admirer of Patrick<BR>

Patrick,<BR>Since you gave specific facts I can guess what might have happened.<BR><BR>On Sept 30, 300EU at pure exchange rate of about 1.0123 (historical closing number) should have been $296.35. Paying $299.05 for this means 1% as we always know what PLUS/CIRRUS charges for this service.<BR><BR>The 104.50EU, on the other hand is more involved. It was probably not exchanged on 9/30, but few days later when the charge was actually posted. Assuming two days later on 10/2 when the exchange rate was 1.016. Then the pure charge was about $102.85. You paying $104.65 means about 2.7% = 1% + 1.7%which still shows Citibank charging 2% additional profit.

I think Patrick is making a good point. When I travel, I use my ATM card and my Citibank AAdvantage card for cash and charging respectively. I find this to be the most convenient system. (My bank does not charge me for ATM withdrawals.)<BR><BR>When I get home I usually look at what the exchange rate was on the cash transactions and on the charges, just out of curiosity. The credit card charges are so close in exchange rate to the ATM rate that whatever percent they are adding is invisible to me. It isn't any more noticeable than the normal daily fluctuations in the exchange rate. And I find both the credit card rate and the ATM rate to be quite good, compared to the rate of exchange for cash or TC's.<BR><BR>So I can understand if you are annoyed at the credit card company tacking on a surcharge, but it's just not worth it to inconvenience yourself. You might as well check the rates every morning to decide whether today is the best day to change your money, or wait til tomorrow when the rate might be a few hundredths of a cent better. <BR><BR>Of course it is your choice, but my feeling is that if you can afford the trip, you don't need to worry about the tiny amount of money we are discussing here. After all, if you charged $5000 on a trip (that would be a LOT for me!), an extra 1% would be all of $50.<BR><BR>Getting the mileage is certainly worth it to me.

PS After reading Greg's post, perhaps the real question should be &quot;How can you get a better rate than what your credit card gives you?&quot; Because the &quot;pure&quot; rate, Greg, as listed in the newspaper, is not available to any of us. I think changing money or TC's is far worse, i.e., there is a much higher surcharge built in to the rate.

Greg, your post makes sense, I think, but I can't get the math to come out right. It seems to me that the &quot;pure charge&quot; of $102.85 plus 2.7% would be something like $105.63, not the $104.65 it actually was. I still seem off a good 1%. What am I figuring wrong? (And I used to be so good at math!)<BR><BR>But the major issue with your statement is that I have both the actual credit card slip and the statement. The charge was made on September 30 and was posted on that same day, not several days later. So the actual transaction dates for the ATM and the credit card were identical. I have a number of others like this as well. Of course, some postings are delayed for several days, and I'm not comparing those.

Hi Patrick and others: <BR>The exchange rates used to make credit card and ATM card conversions are based on the whole sale bank rate of exchange. Also, you might make the transactions on the same date, but the posting times might be different. As near as I can tell, the posting time determines the conversion exchange rate -- somehow<BR><BR>However, finding out the exact exchange rate used to make a specific conversion to US dollars is a lot like guessing the ingredients of the &quot;mystery soup&quot; we sometimes ate in the Air Force. It could have about anything in it!! <BR><BR>Specifically I asked both Visa and MC this question: Which specific exchange rate out of the daily stream do you use to make conversions from foreign currencies to US dollars? MC's answer was much more blunt than Visa. Its spokesman said without much ado &quot;Get Lost!&quot; Visa at least wrote me a lot of verbiage that did not answer the question. When I pressed Visa, its public relations man said he would not tell me.<BR><BR>I know from watching daily fluctuations in currency exchange rates that the exact figures shift constantly just like the stock market indices.<BR><BR>So I asked, which rate do you use to make the conversion? Is it the high rate for the day? An average rate?<BR>An exponentially smoothed rate based on highs and lows? Or some other rate?<BR><BR>After a July trip to Canada, I tried to figure it all out, but only added to the mystery soup. I took my receipts from all of my ATM withdrawals, and every charge receipt and compared each one with what I was actually charge in US dollars. <BR><BR>I then looked up the daily exchange rates for each day of each transaction I had made. Part of the problem was that a transaction made on a weekend posed something of a problem. Was it converted with a Friday rate or a Monday rate??<BR><BR>In all cases, after adding 1% for the Visa fee, I concluded that I was charged less than the highest rate for the day, but more than the lowest rate. None of the different daily rates, with or without an add-on of 1%, enabled me to convert precisely from Canadian dollars to US dollars. However, adding 1% to the Canadian dollar figure before conversion got me a little closer to the exact amount., The difference was in the 3rd decimal place, so I was less than 1% off. I don't think rounding errors explained the discrepancies because I was using rates with 4 decimal. Because I was coming out better than the high rate for the posting date (high rate defined as the rate most unfavorable rate to me), I decided to heck with it.<BR>At least I was not being cheated.<BR><BR>This year after we got back from a month in Europe, I did not even look at the rates. I just verified that all of the charges on my statement were ones I had made. Then I paid the bill and forgot about it.<BR> <BR>I agree, that traveler's checks will get you clipped pretty good. And converting currency is just as bad, if not worse. I cannot beat the combination of the convenience of an ATM card and the exchange rate it involves. <BR><BR>I know some folks think I am a little fanatical on the this subject. Not really, I major in economics and history and have done research in international trade. So looking at exchange rates is an old habit. We deal in such small amounts of money that various exchange rates make only a little difference in our net worth, but for a major corporation that does millions of ? in trade, a 3% exchange rate swing means a lot of money -- 30,000 ?

More interesting comments. Thank you, Bob Brown.<BR>I only brought this whole issue up, because this summer I did a lot more ATM withdrawals and paying in cash, thinking I was probably saving 3% on most things. Like Marilyn, those FF miles are important to me and I've never minded a little extra to get them. But when I travel in Europe for three months (or even 5 as I did a couple of years ago) it is a WHOLE lot more than $ 5000 of total charges. After comparing all my ATM and credit card statements this summer, however, I'll definitely go back to using the credit card even more -- I really couldn't find any noticeable difference in cost, like I thought I would. And yes, I agree too, no traveler's checks. ATMs and credit cards are the way to go.<BR><BR>The cloudiness of trying to figure out what rate a bank or credit card company uses has made me also quesion those charge cards that don't add any extra fees. I wonder if they are using the same exchange rate or a different one as the banks which do charge a fee? I don't suppose it would ever be possible to find out for sure. Somehow they remind me of those old days of cash conversion booths at airports -- when that was the only logical way to get foreign cash before the days of ATM machines -- some with a fee and others with big signs saying &quot;no fee&quot;. Often the no fee ones used such a different exchange rate that it was much better to pay a fee and still come out ahead.<BR><BR>In any case, I'm even happier about all the extra FF miles I got this summer from those charges -- extra fee for credit card or not. I've already booked my free flights to Europe for next summer.

It would be easy to figure out, Patrick, if you really wanted to -- just charge two items on the same date, one with a card without the foreign currency exchange fee and one with it. I have two different cards, a Citibank VISA with the 3 pct charge and a Capitol One MC with only the 1 pct charge, so I could do that. Unliked yours, I know my Citibank does charge 3 pct, it's just their basic card, not a AA or anyone else as the issuer. <BR><BR>Actually, I did use both in London in August because all MC networks were down one day, so I had to use my VISA for theater tickets. But I know I couldn't have used my MC the same day, but perhaps a day close by--I'll check my receipts if I can remember to, but don't suppose that would work if it can vary that much within a few days.

Hi again. For the record, my credit card is issued by MBNA through AAA. Because my US dollar costs of charges and ATM transactions in Canada this past July were within range I decided that I was not paying more than 1% at any time over the bank wholesale rate. <BR><BR>For my trial conversions, I obtained historical rates from a national bank in Toronto. The fluctuations in the computed exchange rate ((US dollars / Canadian dollars)+1%) were so limited that if the basic rate was not derived from the daily wholesale rate, it was very close.<BR><BR>In years past, before Bank of America started their 2% extra trick, I had no reason to suspect that I was not benefitting from the wholesale rate.<BR><BR>The worst drubbing I took was in Switzerland when I exchanged paper money. We discovered too late that we still had about 50 ff in bills stashed away in a coat pocket. I converted them at a bank window and shut my eyes.<BR><BR>The best way to exchange is to find someone from Euroland who has a fistful of euros and wants dollars!!<BR>You can use the wholesale rate and both of you profit. I did just that in August before leaving for Europe.<BR>

But if you had on the cash advance fee for credit card use, the exchange rate does not look so glamorous. I used the Capital One card in September in Spain and for 200E ended up with an additional $15 fee. M.

Ah, Marilyn, that was the big mistake. NEVER, NEVER do a cash advance on a credit card. Not only will there be a big fee, but they will charge you interest from the day you &quot;borrow&quot; the money, unlike a charge you make where they give you until your next billing cycle to pay, interest free. I once advised friends who don't travel much to use their ATM card to get cash, and they mistakenly spent their entire vacation taking cash advances on their credit card -- cost them a small fortune.<BR><BR>And Bob, according to the &quot;historical figures&quot; provided above by Greg, I was only paying up to 1.7% above those figures for charging on a Citibank charge card, so I feel OK about that too.

Sticking your credit card in an ATM machine is similar to sticking your finger in an electrical wall socket.<BR>You usually get shocked.<BR><BR>Does City Bank say it charges the extra 2%? I am interested in how you computed the 1.7%. <BR><BR>Comparing credit card costs without precise baseline data is a tricky business. As I said, I never could recapture a rate based on my receipts and bank statement that matched what the bank said the exchange rate was that day.<BR><BR>And without knowing precisely which rate Visa or MC used to make the conversion, all we can do is make some educated estimates, and try to decide if we are being taken advantage of.<BR><BR>That is one reason I don't put my credit card in a slot where I have to turn loose of it!! I know I will be charged interest at about a 21% annual rate. <BR><BR>A friend of mine, college professor no less, fussed at me because he said using his credit card as I suggested cost him 15%.<BR>He was using it to get cash. It turned out that did not know the difference between an ATM card, a debit (check card) and a cash advance!!<BR>He had one piece of plastic and used it for all purposes. Well, you can do that, if you don't mind paying for it.<BR>

I'm beginning to regret I ever started this post -- the math is getting to be a bit too much for me, but to answer how I got my figures, Bob, look at Greg's post above. <BR><BR>According to Greg, the &quot;historical closing figure&quot; for September 30 was 1.0123. Using that figure for the amount I withdrew on an ATM that date and was posted to my account on that same date, the amount I was charged made perfect sense just as he figured it there. But on that exact same day I charged 104.50 Euros and it cost me on my credit card statement (yes it posted that exact same day) $104.65. Using the exact same formula, I actually find that it cost me a total of 1.4% (I messed up the figures when I said 1.7%). In other words, the charges were less than a half percent different on the very same day. Greg was mistaken in saying that perhaps it posted several days later when the rate was better -- the transaction is clearly shown on my statement as posting on September 30. <BR><BR>Yes, Citibank did tell me that they add the extra 2% to the 1% charge. But if they did on that date, they must have started with a much better rate than the historical closing date shows, or the rate that Bank of America used for their figuring. This was not an isolated example. I have a number of exact dates when I can compare the costs of the posting of a credit card transaction and the closing of an ATM transaction and the results are always virtually the same as this one -- certainly never an extra 2% difference for the credit card one.<BR><BR>Please note, I'm not complaining here. I'm thrilled that I can't find how Citibank is charging me much of anything extra for using the credit card.

I knew the difference, but bank at a small credit union that doesn't have an ATM card. Since then I've moved my account and hope to give it a try. M.

In January a friend and I went to PAris. We split every meal and compared the charges. Am ex was considerably higher. Citibank actually had better rates. It is impossible to get the banks to give you honest info.

It's not that hard to understand. One of the credit cards I have explained that both Visa and MC both basically use the wholesale interbank rate to convert currencies and then add a 1% currency conversion fee. This 1% is passed along by every bank; even if they claim they add no fee for currency conversion.<BR><BR>Many of the big credit card banks now add on an additional 2% conversion fee to the final amount that appears on your bill. Citibank is absolutely one of the banks that does this. The only 2 big credit card banks not doing this at present are MBNA and Capital One. Some of the smaller banks do not do this either. Customers of those banks have their charges converted at interbank + 1%. Where the banks add on 2%, you pay interbank + 3%.<BR><BR>Now the two major shared teller networks, Cirrus and Plus, are owned by MasterCard and Visa respectively. So in converting currencies, they add 1% to the interbank rate before it reaches your bank. Again, every bank passes along that 1%. Several banks, including Bank of America, have begun also adding on the 2% currency conversion fee described above for credit cards. Their alliance only has to do with additional fees. Many banks charge fees ranging from $1 to $5 for using an ATM not their own; this is the fee Bank of America does not impose if you use say Barclay's in the UK. The rules of the Cirrus and Plus prohibit banks from imposing fees of their own if you use their machine. Therefore, no matter what ATM card you use, the European bank does not charge you. You pay whatever your bank charges you. And there are some banks who still charge nothing for accessing your money in a European ATM.<BR><BR>Now as far as comparing rates, just understand that the conversion is done when the charge hits the MC or Visa system. Interbank rates change throughout the day. The rate at 9AM may not be the same as the rate at 3PM. So it is very possible that on charges or ATM withdrawals posted on the same day, there could be 2 different rates.....<BR><BR>Hope this clears it all up.

xxx rehashes mainly what has been said already, except for the Plus Cirrus business, which is not all that pertinent to the discussion.<BR><BR>If the bank computers used a constantly fluctuating exchange rate, they would have to feed a constant stream of data on exchange rates for every major currency in the world. The changes come in a continual stream as rates fluctuate during the day. I cannot believe that the time-date stamp of the transaction is pegged to the exchange rate at that precise moment in time.<BR>The rates would have to be updated so frequently, and for so many different currencies the task of picking a specific rate would be most tedious.<BR>Perhaps it could be done if a super computer was assigned to the task, because those things have computational powers beyond comprehension.<BR><BR>Perhaps that is the reason I got the brush off when I asked. The bozos simply did not know and did not want to bother with finding out.<BR><BR>In my origial question I postulated that the date time stamp on the transaction was keyed to the exchange rate stream. But that question drew no response. Given the hundreds of thousands of charge transactions and bank withdrawals that are converted each day, I still find it hard to believe that the exchange rates used to calculate the conversions are changed every few seconds in a constant stream.<BR><BR>Does that mean that processing stops when the currency markets of Country X shut down for the day??<BR><BR>

This year we were in England. <BR><BR>At one point I pulled out brand X atm card and withdrew &pound;200.<BR><BR>As I pocketed the cash, my not so furry other pulled out brand Y atm card and withdrew &pound;200.<BR><BR>We compared statements later ( a popular thing to do, apparantly).<BR><BR>Brand X charged $497.02CDN plus $3CDN fee.<BR><BR>Brand Y charged 501.55CDN plus $5CDN fee.<BR><BR>The two transactions were seconds apart from the same bank in England.<BR>

Whew, guys, my eyes are glazing over. Thank god someone else is doing all this mathematical analysis! Bottom line (as we financial types like to say):<BR><BR>Getting money in a currency other than your own (whether via ATM or credit card) is going to cost you something. It's a service and is going to HAVE to make money for the provider of the service. So they're going to get it on the rate, on a surcharge, or on a fee. There's nothing you can do about it!<BR><BR>I, for one, am thrilled to have my gut instinct validated by our experts in economics who have posted above. <BR><BR>Just remember -- cash advance on credit card -- NO NO NO!

I actually managed to find out something interesting on this point which probably explains the differences that Patrick found. The main thing I was able to verify was that my Capital One Mastercard, which claims no add-on to the one pct MC network charge, was accurate, they did convert my charges at only 1 pct over the interbank wholesale rate. And my Citibank VISA appeared to add on a total of about 3 pct. <BR><BR>I couldn't tell which rate Capital One used because the high, low and average rates were very similar for the date in question. Cusomer service told me the exact rate used for conversion and the conversion date, but their listing was rounded to two places past the decimal point, so I couldn't tell for sure, but it definitely wasn't the high. It was .64 ($ to GBP) on 8/31 and Oanda says the daily average was .645 (the low was .643, and the high .6473).<BR><BR>In any case, that does answer the question that Capital One is telling the truth and not using some disadvantagous formula to make up the difference. <BR><BR>However, what I found out by calling customer service was the actual date of the conversion because it originally looked almost 3 pct higher than the avg. rate based on the posting date. What they said is that the posting date is always the date the transaction was made, because customers need to match the charge to the slip they signed, but the actual conversion can be done about 4-8 days later, they said. In my case, I had two charges on 8/23 and 8/24, which were the dates on my statement, and both were not converted until 8/31. Their conversion rate was indeed identical and matched the interbank rate plus 1 pct on 8/31, so I believe that. I had originally thought they were adding on an extra 2 pct, but the USD vs GBP did change 2 pct over that week according to Oanda.<BR><BR>So, Capital One really isn't adding on more than the MC one percent, and Patrick probably wasn't getting as good a deal as he thought. Basically, he got about a 1-1 rate which is about 3 pct over .97 (meaning a euro would cost $.97). Looking at the euro to USD interbank rate over 9/30/02 to 10/8/02, there were several dates when it could have been at that level, although most of the days it was around .98.<BR><BR>I have a Citibank VISA and I compared it for other charges during that trip, and it does add on 3 pct total, but I suppose their AAdvantage product might have only a total of 2 pct addon rather than 3 pct, I don't know.<BR><BR>It was interesting for me to learn that the exchange date could be that far from the posting date on my statement, which is always the date of the original charge so you can match it up with your slips. I guess it was also interesting to see that even during that time which wasn't that unusual, the rate varied several percentage points anyway over a two week period.

Your point is very interesting and complete, Christina. There is only one point. I can clearly see from my saved charge slips and the statements that the date Citibank uses as the posting date has to be the date it is actually posted, and not the date of the original purchase. This is clear because on the average, most of the posting dates are one day later, some as much as four days after the actual date on the charge slips. It is also very clear as quite a number of the hotel charges -- my biggest ones -- are a couple of days after we had departed that hotel, clearly not the date that the actual charge was made. I also have charges from three different cities on my statement for the same posting day, clearly not possible to be the dates of the transactions as I couldn't be in three places at one time!<BR><BR>I guess my major point was that although supposedly Citibank is charging me a total of 3% (2% plus the 1% imposed by master card) and my bank is supposedly only charging the 1% (which I didn't even know about until this thread), that the end results on my statements do not show that much difference!<BR><BR>