Going on a trip abroad can be an expensive undertaking, but savvy travelers can stretch their dollars further no matter how far they venture outside of the U.S. by making the right decisions about how to deal with currency exchange issues. A survey of rates and fees of different banks, credit card companies and currency conversion services turned up some very helpful data – the cheapest way to go is to pay with a credit card, especially a “no foreign fee” credit card.
In a recent survey done by a credit card comparison website, Credit-Land.com, the U.S. dollar-to-Euro conversion rates of 15 of the biggest banks country-wide were analyzed, along with their transaction fees. Also included in the survey were the rates and fees applied to currency conversion by Visa, MasterCard and airport-based currency exchange company Travelex.
Based on the exchange rate of June 28, 2011, globetrotters can expect to receive 1 Euro for every 1.4291 of their American dollars when using a no international fee Visa or MasterCard. That rate beat all the banks in the survey whose average conversion rate is 1.5196.
The study revealed that the bulk of credit cards, over 90%, charge a 3% foreign transaction fee, which is applied to any and all transactions that are processed outside of the country – not only just to purchases made while overseas. It makes sense, then, that no international fee credit cards, which are offered by banks like CapitalOne, American Express, Citi and Chase, are the best money-saving tool available to travelers because the cards do not apply this 3% charge, no matter where the transactions are processed.
Be aware, though, that these card issuers have not eliminated foreign transaction processing fees across the board. AmEx still charges 2.7 percent on most of its cards while eliminating fees on its Platinum and Centurion cards effective this past March. Chase and Citi also have both fee and no fee cards.
Even when using a card that has a 3% foreign transaction fee, travelers will still enjoy an average savings of 4.9% over converting currency at banks and 11.7% saving over using Travelex to exchange money. It’s wise, however, to embark upon any journey with some cash in hand for incidentals. According to the survey, the banks offering the most appealing dollar-to-Euro exchange rates are Northern Trust and Harris bank, both of whose exchange rates are less than 5% higher than those of a no international fee credit card. Neither of those banks have an exchange fee. Of all 15 banks surveyed, U.S. Bank charged the highest fee of $9.95 to convert $300 into Euros, and its conversion rate was well above the average at 1.61.
One costly pitfall travelers should beware of while shopping abroad is something called a “dynamic currency conversion.” Be wary of merchants offering to convert credit card transactions from the local currency into U.S. dollars on the spot. Typically, a merchant performing this conversion will use a much higher rate than the current conversion rate and keep the difference for themselves as a “fee.”