Overseas travel? Pack the right credit card

By MarketWatch

It's nigh impossible for U.S. travelers overseas to avoid the weak dollar's squeeze on their pocketbooks. But there's another travel cost that's easier to avoid: the fee credit card issuers tack on every time you make a purchase abroad.

It's called an international- or foreign-transaction fee, and it's charged as a percentage of your overall purchase price once that price is converted to U.S. dollars.

Visa and MasterCard charge a 1% processing fee on foreign transactions, and then the bank that issued your card adds its own fee, which typically ranges from zero to 3%, according to IndexCreditCards.com, a credit card news and comparison Web site.

"If you are a frequent traveler, you want to pay close attention to this," said Justin McHenry, the site's research director.

"If you travel a lot for business or you're a retiree who travels internationally, then these transaction fees can really add up. That's when it makes the most sense for someone to look hard at these fees and then make that determination whether you should switch cards or add a card especially for those trips," McHenry said.

If you don't travel overseas often, it may not be worth your time worrying about which card charges the lowest foreign-transaction fee.

"The 3% versus 1% is not necessarily going to make a huge difference," McHenry said. "If you're spending $2,000 (on a purchase), an extra $60 is not necessarily going to break the bank."

If you're considering applying for a new card for its lower fee, remember that applying for a card can hurt your credit score.

"You obviously need to think about your credit score, but if you're the typical consumer with decent credit, you're not really going to put yourself in much of a bind by adding another credit card," McHenry said.

Keep in mind, too, that the international-transaction charge shouldn't be your only consideration when applying for a card. Compare interest rates, annual fees and rewards programs.

And, of course, there's the exchange rate. Typically, travel experts advise that using a credit card overseas will garner you one of the best exchange rates -- the rate banks charge each other -- compared with the bank-to-consumer rate you'll get by walking into a bank or the even steeper rate to be had at a local exchange booth.

But that standard advice came into question recently with a lawsuit against some credit card issuers claiming they had inflated their exchange rates on credit card purchases. The card issuers settled the lawsuit but denied the plaintiffs' claims.

How the cards stack up

Here are the international-transaction fees some banks charge, from lowest to highest fee, according to IndexCreditCards.com. For banks that issue Visa- or MasterCard-branded cards, these percentages include the credit card companies' 1% fees, the Web site says:

• Capital One: 0% transaction fee. Capital One also eats the fee that Visa or MasterCard impose.
• Discover: 0% transaction fee. However, Discover is accepted on a limited basis outside North America.
• Washington Mutual: 1% transaction fee.
• American Express: 2%.
• Pulaski Bank: 2%.
• Barclays/Juniper Bank: 2% to 3%
• Bank of America: 3%.
• Chase: 3%.
• Citibank: 3%.
• GE Money: 3%.
• HSBC: 1% to 3%.
• U.S. Bancorp (U.S. Bank): 3%.
• Wells Fargo: 3%.

Surprise charges

The foreign-transaction fee is not the only bank term you should consider before you travel, said Christopher Elliott, an ombudsman with National Geographic Traveler and host of the show "What You Get for the Money: Vacations" on the Fine Living television network.

"The moment you cross the border, things change," he said. For instance, any fees for using an out-of-network ATM may be higher if you're in a foreign country.

Also, it's often difficult to tell from credit card statements what exchange rate your bank gave you on your purchases. It pays to find out before you go which of your credit cards is likely to charge the best exchange rate. Even though the actual rate will be different on the day you make a purchase, you could call to compare the current day's rates.

"People at the end of their European vacation are often in for a big surprise when they see their credit card statement," Elliott said. "I have dealt with literally hundreds of travelers who've had stories like this to tell.

"Definitely, call your bank before you go on an international trip. At the very least, look up online what the terms are of the credit card," Elliott said. "I have seen some people switch credit cards if they're going to do a lot of international travel."

If nothing else, seek a card that details the exchange rate on statements. "On some statements it's broken out, and it says this is the rate you got," Elliott said.

Opt for local currency

Also, make sure retailers charge your card in the local currency. Some might offer to charge you in U.S. dollars, but that gives them control over the exchange rate, said Bob Jones, a travel expert with BookingWiz.com who is based in Grand Rapids, Mich.

Some merchants "will tend to float things until the rate is best for them, (and) some banks will actually allow them to go for the highest rate in a three- or four-day period," Jones said. "At first it sounds like they're doing you a favor, but in fact they're not."

This article was reported and written by Andrea Coombes for MarketWatch.

Published June 12, 2007