Patty

I know there have been several threads lately discussing credit card conversion fees. I was very surprised to check my Worldperks Visa (U.S. Bank) online statement this month to find that they had clearly posted their added conversion fee for each transaction. For example, one $66.76 transaction shows details of 37.5 pounds + $1.29 conversion fee. At least I know what they're charging vs. other card issuers where it's hidden in the transaction.

Adeline

US Bank is very good about posting these. I don't know if it's common for other banks. I live in Germany, with my US Bank account and my statements always reflect they rates.

111op

I haven't been following these threads, Could someone summarize quickly? Are we saying that it's not cost-efficient to use credit cards overseas? I carry Amex and Citibank Visa, but I've been using the Amex almost exclusively.

Thanks for sharing.

dixon

Hi 111op. The discussion in the past has focused on the extra amount some banks add on to foreign exchange credit card transactions. Both Visa and Master Card charge 1% for making the exchange. (We are talking European conversions; I don't know what the practice is with Asia or South America.)
Some banks add on 2% more for credit card transactions. For example if you charged an item for 100€, Visa or MC would add 1%, or making the purchase 101€. Some banks then add 2% on top of that so that the effective exchange rate is 3% less in your favor.

MBNA claims it does not add on the extra percentage. The only way you can approximate what you are being charged is to know the bank wholesale rate for that given day and compare what you were charged against what you would have paid had you gotten the exact bank wholesale rate.d

The problem is that the rate changes all day long and I have been told by both Visa and Master Card that they will not tell me how the exact rate is pinpointed. (I tried and was told to go away.)

Out of interest one day, I took all of my Visa charges on my MBNA card and tried to reconstruct the exchange rate. I never could. I got 4 rates for each day from a bank in Toronto:
the high rate for the day, the low, the median, and the close. None exactly duplicated what I paid. At least, after adding on the 1% adjustment, I never paid as much as the day's highest rate. So I concluded I was not being ripped off.

The sad part to me is that some people claim they pay no fee. But if you look at the rate of exchange used to make the transaction, the exchange rate has been adjusted 5% against you from the bank wholesale rate.

I know just recently my son bought some Canadian dollar denominated traveler's checks. After I got through figuring what he paid, it was 4.5%. His effective rate was equal to the whole sale rate multipled by 1.045.
So banks make a killing for virtually nothing when they exchange money.

Conventional wisdom has been that ATM cash withdrawals and credit card purchases are the best way to go. But if your bank adds on 2% to the amount of the transaction for doing essentially nothing, I am not so sure that credit cards are always the best.
The problem is that they are usually cheaper than the alternatives.

Patty

111op,
dixon summarized it pretty well so I won't go into details, but basically withdrawing cash via an ATM gives you the best rate of exchange provided that your bank doesn't charge a transaction fee. With credit cards, you're paying a small markup for the convenience. I think Amex is around 2%. Of course, there are occasions when you should use a credit card and the benefits outweigh that extra cost. Even with the fees, credit cards are still better than exchanging currency or traveler's checks.

111op

Thanks. I'll have to look at the bills more closely. This is something I've become so used to doing (i.e., using a credit card and believing their exchange rates) that I've never really bothered checking very carefully.

I bank with Citibank and I try to use only Citibank ATMs, even when I'm overseas. In the big cities, this can still work quite well -- they're usually in very conspicuous locations.

But regarding the unfavorable exchange rates for credit cards, I guess I did sort of know at the back of my mind that this is true -- when I went over my expenses for my summer trips, I remember thinking that the money I withdrew with my ATM card seemed to be converted at a better rate.

I guess now that I know this is a fact, I should be more careful. But if it's any consolation, if the markup is 2%, say, then on $1000, this will amount to $20. It's a small price to pay for the convenience, I guess, but I hate the fact that these companies gang up on people and aren't more forthright about the implicit charges. At some point I may well decide to try to pay in cash instead (but of course, it's always dangerous carrying a large amount of cash, especially when traveling).

Thanks for your insights!

RufusTFirefly

Don't confuse exchange rates with fees. Credit card charges and ATM cash withdrawals with a bank card get the same exchange rate. That rate fluctuates through the day--it just depends when your particular charge hits the system, which could be anytime from almost immediately after you make the purchase to days later.

Fees are added on. Mastercard and Visa do charge 1% on all credit card transactions. In additions the bank issuing the credit card can charge another 1-3%--or nothing additional like MBNA. Some banks are now charging a percentage for cash withdrawals with a check card--just like the credit card companies for charged purchases. In addition, a bank can charge a flat per transaction fee--or not.

It pays to shop around. Get a credit card that doesn't add any additional fee to the MC/Visa 1%. Get a cash machine card that is no fee. Credit card convenience is worth 1% to me, it might not be worth it to someone else.

dixon

Well, if I walked up to you and took $20 from your pocket for no service provided, you would get madder than heck about it and accuse me of stealing. What is the difference here?
I see none, other than the establishment of a legal basis.

rhkkmk

i do not like the posting of the fee seperately...in fact i do not use my worldperks card overseas for that reason....i find the fee excessive in comparison to other cards...

i understand why you like to see the whole thing, but when you buy something for a substantial price or pay your hotel bill for 5 days and then you see an extra $50 r more $$ then it makes me mad....i would rather have it hidden in the conversion...personal choice...

RufusTFirefly

They are providing a service. Some just charge more for it than others. So shop around and get the service as inexpensively as you can.

xyz123

They are not providing a service. The actual conversion is done by MC or Visa. When the charges reach their computer, it has already been converted by MC or Visa. It makes no difference if the charge was made in New York, London or Timbuctoo. So, they have just decided that in order to further rip off their customers, they will just jack up the amount on a specific class of transactions i.e. transactions made in a foreign currency. What's next...a jack up on charges made in fast food shoppes?

To the person who said $20 is no big deal; I agree with you. The point people are trying to make is that it is an unnecessary $20 as you can simply use the credit card of a bank not pulling this crap.

Had consumers been smart enough to realize this several years ago and stopped using the credit cards of those garbage pulling banks, the fee would have been still born.

Unfortunately most people are stupid when it comes to these things and march like sheep to the slaughter and throw out such stupidities as mastercard gives better rates than visa not understanding that the fees have nothing to do with MC or Visa but are set by the bank offering the card.

bob_brown

I think the above somewhat militant comment is accurate. I would also add that you do not know what you paid, whether it be called a fee, a surcharge, leverage, transaction charge, or bribe, unless you know the bank wholesale rate for that point in time and can compare it with what you actually paid.

As I described elsewhere, I was finally told in no uncertain terms to shut up and go away by both Visa and MC when I tried to find out how the exchange rate for credit card conversions was determined.

I also related that I tried to reconstruct what I was charged by getting daily exchange rates from an international bank. I never could match up exactly; all I could determine was that I never was charged more than the highest (least favorable to me) exchange rate for any given day over a sample of about a dozen credit card conversions over a 2 week period. The highest in this case was before the 1% adjustment for Visa's standard add on for posting the transaction.

As I understand it, the banks receive the conversion already calculated. They do nothing but print it on your statement. In that respect a credit card transaction made overseas does not take any more time, effort, storage space, or computer time to post than a domestic transaction. Those banks which add on 2% more are greedy. I read here that people say it is not much money, $20 or $30. If I took it out of your pocket without telling you, and you caught me, would you not call the cops and have me arrested for petty theft?
Or if I walked up to you on the street and said "Give me $20," would you do it?
I doubt it; you would tell me to get lost in no uncertain terms. Or, would you drop by your local bank and tip one of the officers $20 for keeping the bank open and letting you have YOUR money when you want it?? So how do you justify tolerating the practice of adding on 2%?
The banks which charge are providing no more service than those who do not charge. So, again, why not send me the money? I just provided more service than they by telling you that they are ripping you off.

111op

I guess what I find frustrating is that the charges are somewhat hidden (at least in my case). I mean, if I use my card in the U.S., I know exactly what I'm paying for. (I'm not charged a fee.) So if the item costs $100, it appears as 100 on my statement.

Now, if I purchase an item in France, say, for 100E, and I withdraw 100E from my bank, and let's say the bank gives me 1.25 as the exchange rate, this will show up at $125. But if I charge the same item on the card, the card may give 1.26 as the exchange rate, and this now shows up at $126, with an extra $1. There may be no upfront fees, but the fact is that they've sort of ripped you off by giving me you a worse exchange rate.

I think that I'm pretty convinced that fee or no fee, the exchange rate offered by the card is not as good as the one offered by the bank. I could be wrong of course. I'm going to try to do some experiments the next time I visit Europe.

jsmith

When a credit or debit card is issued it is accompanied by a legal document titled "Cardmember Agreement". If there are any changes during the lifetime of the card, you receive a notice of the changes.

From the questions that this board receives, it is obvious that a significant number of posters relegate these agreements to the round file with nothing more than a cursory glance.

Any fees are precisely defined. The user has the right not to use the card if he feels the terms are onerous. So, as Rufus says, shop around and stop bi---ing.

111op

I've my doubts as to whether exchange-rate computations are spelled out in the Agreement. And, in any case, this does not arrive until one has signed up for the card, I believe. So, what does one do? If the terms are onerous, cancel and sign up for another, and keep doing this?

I mean, the fact is that companies obfuscate rather than clarify for obvious reasons. You see this sort of behavior everywhere -- in banks, airlines, long-distance phone companies, etc. It annoys me.

xyz123

It was the lack of disclosure of these fees that led to the law suit decided against Visa and MC about a year ago. We are still awaiting for the punitive damages to be spelled out. I suspect card holders will get about 30 cents each while the lawyers will pocket millions but then again that's the American tort system.

Due to this law suit, more and more banks are spelling out more precisely what fees are charged on foreign transactions. They are indeed found on the document that accompanies the credit card.

carrolldf

I double checked my Credit Card bills for my recent trip to London and found the following on the two different cards I used:

1) American Express just posts the final converted cost without also showing the cost in GBP. I would have to pull out receipts and manually convert each item to find out what the actual rate used was.

2) My USAA Master Card shows the rate in GBP, the conversion rate used, and the final cost. The rate appears to be very reasonable, less than 1% difference between rate on statement and the historical rates posted on Oanda. For example, the charge for the Gatwick Express on 10/13/03 was 11 GBP, rate used was 1.677272727 (yes, shown to nine decimal points!), USD charge was $18.45. The historical interbank rate as reported by Oanda for 10/13 was 1.66510, which is approx 0.73% (or less than 1%). If MC is charging 1%, then USAA must be offseting it somewhat rather than charging additional fees on top of it.

I may have to change my charge habits when I travel -- I usually use AmEx first (just like I do in the states) and only use MC as a back up when they won't take AmEx.

jsmith

111op, a quote from the First USA (BankOne) change to the BA Visa card:

"Visa and Mastercard convert transactions in foreign currencies into US Dollars and add 1% to the amount, We now will add an additional 2% to the amount Visa and Mastercard provides to us."

Pretty clear to me and I will use a different card when traveling overseas. That's what choice is.

111op

Thanks jsmith -- but a small quibble. Notice that the Agreement does not spell out how the exchange rate used to perform the conversion is computed. So effectively, that could be unfavorable, even if there's no explicit conversion fee. It's not as clear as you think.

Thanks carrolldf for your example. If the numbers are right, then the fee (if it's a fee and not an exchange rate fluctuation), is not very large.

I'm going to do my own experiments this time. Like you, I tend to use Amex. I'm going to use my Amex and Citibank card this time, along with drawing money directly from the bank.

erinb

hi everyone,

This past October, my traveling companion and I went to London. Between the two of us, we used 3 or 4 forms of credit/atm.

When we got back, we took stock. Here's what we found out to be true in our case.

The best rate was using an atm/debit card to get atm cash advances that pulled from your checking account. No fees other than the fee your bank may charge for using someone elses atm. In my case it was 75 per withdrawal. In Penny's case there was no charge because of the type of checking account she had. In both our cases, as near as we can tell, the exchange rate used was the closing rate on the day the atm cash withdrawal came from our account. (if the withdrawal was after a certain time each day, that was the next day). Since no credit card interest would be involved later, and london atms did not charge any fee, it was almost an even trade for cash in Penny's case. In my case, considering the amount of money I took out, 75 cents each day was less than $7.50 for the whole trip.

In my case, this visit, I used my credit union visa to make those atm withdrawal and the same applied, with only the 75 cent atm fee. (this is normal for me if I used anyone elses but the credit union's atm, either here in the states or elsewhere). Since I am charged the same interest on cash advances vs purchases this made sense for me. On my last visit 3 years ago, the same fee applied to my atm/debit on atm withdrawals from my checking account from the same credit union.

The best rate we got on any visa PURCHASES was thru my credit union visa, the exchange rate was the close to the closing rate of the day that the purchases cleared with about a 1% markup which I am assuming was the visa clearing house. No fees from my credit union were applied.

Penny's experience on exchange for her purchases on her visa was vastly different and quite horrendous. She still can not get a direct answer as to what rate they have used, what the clearing house markup was, and what the actual visa markup fees were. We could not pinpoint on any standard rate used on any given day (low,high, medium, closing) and whether the visa clearing house used a 1 or 2% and whether the visa company used a 2 or 3%. As near as we can tell, the highest rate each day was used with about a 4% markup, so we are assuming that the highest rate was used each day, adding 1% for the clearing house, and 3% for the visa company. this visa was CITIBANK. she did not use them for cash advances at an atm, on for purchases and hotel bill.

After it was all said and done, we came to the following conclusions.

The best way to go is to use your atm/debit which pulls from a checking account, AT AN ATM FOR CASH each day and you make your purchases from that cash. Find a bank like Pennys or a credit union like mine that does not charge a extra atm fee internationally. Even if you have to just open a special checking account there for travel.

If you have to use your credit cards to finance the trip, you would be better off getting that money via cash advance in the states and placing it in your checking account before you left and using your atm/debit card for cash advances from atm and purchases. (the only time this would not pay, would be if your visa/mc charges a much greater interest rate for cash advances vs purchases and you plan on taking many months to pay it off.)

pay for your hotel bill with the atm/debit visa from that bank which pulls from the checking account. even with the 1% markup of the visa clearing house, you would still come out cheaper by doing the cash advance from your other visa to checking acct prior to leaving the states. and if you are using that visa for miles, by doing the cash advance you are still getting those miles.

That was just our experience.