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Currency-conversion fees charged by major banks and credit card providers
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Your Money: Don't let foreign exchange rates spoil your trip
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If you plan to travel outside the USA this summer, brace yourself for $8 hamburgers, $7 cups of coffee (refills not included) and $100 taxi rides from the airport. Want a hotel room for less than $200 a night? Be prepared to share a bathroom at the end of the hall with a burly guy who takes long showers.

There's not much you can do about the anemic value of the dollar right now compared with other currencies. But you can take steps to reduce currency-conversion fees. These fees aren't as obnoxious as a $10 croissant, but they can drive up the cost of your vacation.

Visa and MasterCard charge a standard 1% fee for foreign purchases. In recent years, many banks have tacked on currency-conversion fees of up to 2%.

These fees are calculated as a percentage of your overall credit card purchase, usually in U.S. dollars. If, for example, you spent 100 British pounds, and it converted to $198 in U.S. dollars, a 3% currency-conversion fee would add about $6.

But this additional insult to your travel budget is avoidable. According to a new survey by, there's a lot of variation in the conversion fees that credit cards charge (see box). The most notable example is Capital One, which doesn't charge any of its own fees and absorbs the Visa or MasterCard fee.

Should you get a Capital One card before you get on the plane? It's worth considering "if you're someone that travels overseas often," says Justin McHenry, research director for For a one-time family vacation, applying for a new credit card might not be worth the trouble, especially if increasing your available credit could damage your credit score. Instead, McHenry suggests, review the transaction fees charged by the cards you already have. If one of them offers a lower fee, you'll be able to save money without increasing your credit line.

Better disclosure

In the past, banks typically added currency-conversion fees to the total bill, making it impossible for consumers to see how much they were being charged. But a settlement of a class-action lawsuit filed against Visa, MasterCard and several major banks has made it easier to figure out whether you're being gouged or merely nicked. In the settlement, reached last year, the credit card processors and banks agreed to pay $336 million and improve their disclosure of the fees. (To find out if you're eligible for a refund under the settlement, go to

Linda Sherry, director of national priorities for Consumer Action, an advocacy group, says the improved disclosure helped her plan a vacation in Canada for this summer. Sherry made an advance deposit for her hotel reservations on a credit card. When the bill came, the deposit included a 3% currency-conversion fee. Sherry has since obtained a Capital One card so she can avoid fees on other charges during her vacation in Canada.

Figuring out how much your bank or credit card issuer charges before you get a bill requires some digging, McHenry says. The information must be disclosed in the brochure you received when you got the card, but many people don't hold on to those materials. You may be able to get the information from your credit card's website.

Still better than cash

While transaction fees are annoying, you'll save money by using credit cards instead of cash for foreign purchases. Card issuers can negotiate a better exchange rate than you can get on your own, says Ed Perkins, author of Business Travel: When It's Your Money.

"In the overall scheme of things, 3% on a credit card is less than you'll pay if you take traveler's checks, and a lot less than you'd pay if you change currency at a U.S. airport," he says. Other tips for globetrotters:

•Use ATMs to acquire foreign currency for tips, taxis and other items you can't charge on your credit cards. You'll get a better exchange rate than you can at a foreign currency exchange.

You can reduce or eliminate withdrawal fees by doing some research before you go. Check your bank's website to find out which brands of ATMs are in its network.

•Don't use your credit card to get cash from an ATM. Nearly 90% of credit cards charge a higher interest rate for cash advances than for credit card purchases, with some charging more than 28%, according to Consumer Action's annual credit card survey.

And with cash advances, there is no grace period. Interest starts accruing the day you get your money.

•Reject offers from merchants to convert your bill into dollars. You'll still have to pay the currency-conversion fee charged by your credit card, and the merchant may add his own conversion fee of 2% to 3%.

This practice, known as dynamic conversion, provides an extra source of revenue for merchants, Perkins says.

"It's good for them," he says. "It's not good for you."


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