The Complete Guide to International Travel Without Outrageous Bank ATM and Sneaky Credit Card Currency Conversion Fees

Avoiding Foreign Currency Bank, ATM, Credit Card Exchange Fees While Traveling

The Truth About Currency Fees While on Vacation

It’s wonderful that free checking accounts and credit cards with no annual fees are available in the U.S., but are they truly free? As you surely know, fees are how most banks make money to generate huge profits at your expense. Besides fees for minimal balances, returned checks, “foreign” ATM withdrawals, and overdraft charges, banks also make a lot of money on foreign currency conversion fees.

Those are the fees charged when you withdraw money or charge a purchase in a foreign currency (anything other than U.S. Dollars). So if you are visiting London and withdraw British Pounds (Sterling), fly to Japan and charge your hotel stay in Yen, or head to Mexico for a beach holiday and get Pesos from the ATM, those are all foreign currency transactions.

Difference Between the Real and Actual Exchange Rate

The problem is that when you make a purchase with your credit card or debit card in a foreign country (or online in advance while planning and booking a trip), you have no idea what actual exchange rate will be applied between their currency and yours. Will it be the “live” rate, the average rate for the day, the rate at the end of the day, or an inflated version of one of those rates.

Unfortunately in many instances the rate that you’ll receive when using your U.S. Visa® or MasterCard® for a purchase outside the country is their “current” rate plus an additional fee which gets rolled into the transaction total. As it is in their best interest to keep collecting those hidden fees (more on that later), banks hope that you won’t notice them on your monthly statement.

You Can Avoid Foreign Transaction Fees When On Vacation

Bank Fees and Charges StatementWe all want to enjoy our time off from work while on vacation in a foreign land and not have to become an expert in currency math.  That is why it pays to know the rules and traps of foreign credit, debit, and ATM transactions. You might be tempted to assume that you’ll get the best rate from your bank and not worry about it. Worse you might think, “I’m on vacation, so what’s a few extra dollars here or there.”

However when you return home and look at your bank statement, you’ll see how these small conversion fees do add up. Or you may not notice since some banks hide their fees – tricky, tricky, tricky.  By not separating the fee from the purchase amount after it is converted into U.S. dollars, it is difficult to determine what if any fee was added to the total.

Take a look at one of your own past bank or credit card statements from when you traveled internationally. Do you see a line item labeled as the foreign currency conversion fee or an actual exchange rate applied or just a final amount? Americans typically have several cards in their wallet and it has become a nightmare to keep track of which to use to save money while on vacation abroad.

Regardless of whether the conversion fee is clearly highlighted on your statement or if it is secreted away in the fine print, it is still more than you should and could be paying.

Travel Friendly Banks Do Exist

As you’ll see in this how-to article, a few banks are foreign travel friendly. They offer benefits for people who travel abroad by keeping it simple. They do not add hidden fees to every transaction while you are enjoying your vacation days in Ireland, Thailand, Canada, Sweden, or anywhere else in the world.

By planning ahead you’ll save money on every trip you take outside of the USA. You’ll need your ATM and credit card when getting cash, checking out of a hotel, purchasing souvenirs, paying for transportation and tour tickets, charging dinner, or renting a car. Plus when you choose the optimal bank you’ll often get the added advantage of cash back, reward miles, travel insurance, and car rental protection included.

Every bit of savings adds up so don’t ignore a few dollars here and a few dollars there when you can travel to Europe, Asia, the Middle East, Central and South America, and Africa fee-free. Find out how to avoid paying foreign currency conversion fees on your ATM withdrawals and credit/debit card purchases. This resource article is especially important to Americans traveling to Europe, but the same advice will help you avoid fees while on vacation worldwide.

ATM Cash Withdrawals Which Minimize Currency Conversion Costs

Travel ATM, Money, and CalculatorYou may have heard the advice to wait until you arrive at your destination to withdraw local money from an ATM machine. What makes people go to their bank branch to buy a stack of currency notes before a trip? It’s neither convenient nor a bargain. Or likewise use a foreign currency exchange kiosk at the airport (maybe it’s the flashing lights that makes you believe you are getting the live market rate)? If you compare your options you’ll quickly realize that the best exchange rate is almost always available at a regular bank ATM in the country in which you are visiting.

Now that doesn’t mean there are never fees tacked onto this “live” conversion rate, because often there are. A majority of U.S. banks add an extra 1% to 3.5% onto their official exchange rate for the day. So while you are receiving close to the actual live rate of exchange for the day, the banking system fees negate much of the benefit. That is why you also need to shop around for a checking or savings account that delivers foreign currency withdrawals for a 0% fee. Yes, it is possible!

Why Capital One Bank is for World Travelers

As a long-time customer I can tell you that Capital One® is both an online bank and a traditional branch bank in many U.S. states. It gets even more complicated since INGDirect Bank, which started out as a high interest online savings account, merged with Capital One. So the original Capital One Bank hasn’t changed, but INGDirect in the USA (ING still exists in other parts of the world) became Capital One 360. My understanding is that they’ll merge their brands together eventually.

The easiest option for most people living in the U.S. is to open a Capital One 360 online checking account. It has no monthly maintenance fees and most critical, offers a MasterCard ATM Debit card with 0% foreign withdrawal option. This will be the card you can use on all your trips to Europe and around the world to withdraw cash in the local currency. Why pay a fee on top of the current exchange rate just to withdraw your own money while on vacation in a foreign country? You don’t have to and I haven’t had to for years. Let’s hope they never change this policy.

When you happen to live in a state like New York where Capital One maintains physical branches, you may prefer to open a traditional checking account in person. Since state banking laws and policies vary, always confirm with a banker or sales agent that the account type you are opening comes with an 0% foreign currency withdrawal ATM card for your state of residence. That way there are no surprises later.

Foreign Transaction Fee - Capital One Terms

Capital One 360 Online Checking Account FAQ – Foreign Transactions (11/10/2014)

Credit Cards Without a Currency Penalty

Credit Cards with 0% Currency Conversion GraphicJust like with ATM cards used to withdraw cash in foreign countries, you also want to have a credit card to use while on vacation outside of the USA. Since both debit and credit cards work on the global Visa or MasterCard financial networks, they both incur foreign currency transaction charges. When I ask various credit card companies I’m often told that the exorbitant fees are being added by Visa or MasterCard and not the bank directly. Regardless of who is adding in 1, 2, or 3% to every purchase abroad, avoiding it is the way to save your vacation dollars for vacation experiences and not banking charges.

That is why it is also essential that you bring a travel-friendly credit card on vacations abroad. When you haven’t prepaid for a hotel or rental car or when you want to book a train ticket or tour package in the local currency for example, use a credit card that doesn’t result in hidden and avoidable exchange rate fees.

Why Capital One is the Credit Card for International Travel

You should not be surprised that Capital One also offers Visa® and MasterCard® credit cards that feature a 0% foreign conversion fee. Like I mentioned when you look at the fine print you may notice that Visa/MC charges a foreign currency fee to all card issuers by default. That is the fee that most banks pass along and sometimes bump up to make additional revenue at your expense. You’ll be happy to know that as of today and for many years so far, Capital One does not pass along that fee to its customers. Lucky for us, but I wonder if or how they are making money in other ways.

To sign up for a Capital One Visa card, simply go to their website and compare their card offerings. IMPORTANT: Do take the time to make sure you choose a credit card that offers a 0% foreign currency fee. The Capital One Credit Card FAQ mentions this, but it seems to be not mentioned in the application terms and conditions. The fee rules may vary based on whether the card offers other types of rewards, is co-branded with a consumer company, or based on which U.S. state you call home. If you are unsure, I highly recommend that you call their 1-800 credit card sales phone number to confirm before you apply.

Travel Fees Outside U.S. - Capital One Terms

Capital One Bank Credit Card FAQ – Traveling Outside the Country (11/10/2014)

Travel Friendly ATM and Credit Cards (Resources)

  • Top Travel Credit Cards That Waive Foreign Transaction Fees | The Points Guy
    The Points Guy site is very popular with people who love to earn and maximize their frequent flier miles and travel points. Besides this post, search their forum for extremely helpful travel credit card advice posted by readers like you.
  • Card Fees (and How to Avoid Them) in Europe by Rick Steves | ricksteves.com
    Everyone knows Rick Steves’ is the expert in European travel so this quick read offers the essential overview for Americans traveling to Europe (though the “Back Door” of course). He knows the importance of getting a credit card that is Europe payment system compatible and offers his advice to avoid unexpected foreign currency fees.
  • Capital One Bank ® – Credit Cards
    Apply for a Capital One credit card including ones that offer travel rewards, cash back, miles, points. Always check the Terms and Conditions before applying, but from my research most offer no added foreign conversion fees when you pay in the local currency.
  • Capital One 360 ® Online Checking Accounts
    Open a vacation checking and savings account with Capital One which is free of monthly service fees and helps you avoid ATM card fees while on vacation outside of the United States. They used to also go by the name INGDirect bank. Apply the fee savings and competitive bank interest earned toward your next vacation.

Will a U.S. Credit Card be Accepted Abroad?

Chip and PIN Visa Card (what is it?)Have you heard about “Chip & PIN” cards? It is the debit and credit card standard in Europe, but for many reasons it is still rare for U.S. banks to issue them. A Chip & PIN card is a card that has a microchip inside (see photo) that can validate your 4 digit security code or password. Just like you type your PIN to withdraw money at an ATM, you would need to enter your PIN to pay with a Chip & PIN credit card at the register or at a self-service kiosk.

Sounds like a great security idea, right? Well it hasn’t become a standard in the U.S. due to the high cost of converting all that equipment and a worry that U.S. consumers will charge less if it isn’t as fast and convenient as possible. The good news is that some major U.S. banks are starting to offer Chip & PIN credit cards, but the costs and security standards vary.

Using your Signature Credit Card Without a PIN

Don’t worry as you can still use your U.S. issued credit card in most places in Europe and around the world with a few important exceptions. Since you don’t have a microchip in your card, you’ll need to tell the merchant that you need to swipe and sign. Obviously this is easier when the person you’re dealing with speaks English. Merchants used to American tourists will know what you mean.

Tell or signify to the restaurant, shop, tour operator, or ticket desk that you have a signature card (hand gestures often work). In most cases their credit card processing equipment will handle it even though it is a less-secure option.

The most common problem you’ll run into without a Chip & PIN card is in Europe at self-service machines. Rick Steves’ says that “American-style cards have been rejected by some automated payment machines in Great Britain, Ireland, Scandinavia, France, Switzerland, Belgium, Austria, Germany, and the Netherlands.” This means for example that you are likely to have trouble buying or picking up a train ticket at an automated kiosk. Same applies to luggage lockers, self-service gas stations, and toll-road gates. For transportation tickets, you’re only option is to wait in line to deal with a real person. This can waste valuable vacation time and may even cause you to miss the next train from the airport or to your next destination.

UPDATE: While you may have heard recently that banks are moving towards Chip & PIN cards in the U.S., the truth is that many are actually “Chip and Signature” cards. This half-measure means that you benefit from the added security of a credit card with an embedded encryption chip (good), but miss out on the PIN protection benefits (bad). So they are just as useless for situations in Europe when you need a real Chip & PIN card to make a purchase using your 4-digit passcode.

Read more about it on this CNN Opinion piece on why chip-and-PIN technology is still not coming to the United States.

“Guaranteed Rate” Convert to U.S. Dollars Credit Card Trap (don’t fall in!)

Stop Before You Pay Ripoff Currency Conversion FeesSo you have your bank ATM card that offers cash withdrawals without conversion fees and also a credit card with a 0% foreign transaction fee. You’re all set, right? Not exactly as there is another trap that will cost you if you don’t pay careful attention when paying by credit card outside the US.

You may be familiar with the offer to convert a charge amount (like a hotel or restaurant bill) into U.S. Dollars at the time of purchase. It is usually described as the “Guaranteed Conversion/Rate”, “Guaranteed Amount” or something similar. The official name is Dynamic Currency Conversion (DCC). This sneaky practice tries to make you feel more comfortable by displaying a to-be-charged amount in U.S. dollars as opposed to in a currency which is less familiar to you. So instead of being charged £100, €100, or 100kr for example, you’ll be offered a pre-converted amount with the familiar dollar sign. Sounds tempting, but be warned!

Demand to Pay in the Local Currency!

Even experienced travelers are often caught off guard when offered this option at the point of payment. The way it’s described makes it sound like you are getting a better rate and avoiding the risk by locking-in to a fixed U.S. dollar amount. However if you have a zero percent credit card such as with Capital One, you’ll only get the lowest cost conversion with no added fee if you charge directly in Euros, Pounds, Yen, Rand, Pesos, Kronor, or one of the myriad international currencies that you’ll encounter during your travels.

This practice has been going on for years, especially at major hotels and car rental agencies during my extended travels around Europe. I too have to be diligent to avoid accepting an unfavorable exchange rate. When I’m on vacation with my wife and paying the bill I’m often in a hurry or simply not paying close attention. From experience I always have to double-check. You should also verify that the preferred currency is displayed on the screen (or printed on the bill to sign) before pushing the correct button to initiate a credit card transaction in the local currency

So the best advice is to ask, no demand that your credit card is charged in the local currency. Though don’t get angry with the hotel’s front desk staff or retailer worker. They are trained to offer this option and may not be aware of the financial consequences to you. Do avoid falling into this trap by politely saying “No” to their guaranteed USD amount. Even if you think their rate is better, how do you know that your own bank won’t tack on a foreign fee anyway due to the fact that the purchase was made overseas regardless of currency?

When you are asked to electronically sign on a credit card terminal or sign a piece of paper, verify the “amount to be charged” is as expected in the local currency. Don’t be afraid to ask again if it the transaction amount and currency are not 100% clear to you.

Rental Car Transaction Currency Personal Warning

Twice I’ve run into the situation where I requested to be charged in Euros when renting a car in Europe, but the final amount was first converted to U.S. Dollars behind the scenes. Only afterwards when I looked at my credit card statement and did the math did I notice the discrepancy. I looked up the actual historical exchange rate on OANDA and figured out that a fee was added to the expected rate. This sounded like DCC, but I never got anyone to admit or explain what actually happened.

In both cases I had to first firmly question the actual charged amount with Hertz and after receiving an unsatisfactory response, was forced to dispute the charge with Capital One. Fortunately both times Capital One refunded the difference between applying the actual exchange and the amount charged to my card.

Credit Card and Debit Card Exchange Rates

  • XE.com – Credit Card Charges Calculator
    Find out how much things will cost in USD when making purchases abroad in any currency using XE’s Credit Card Charges Calculator. The conversion tool is available as a mobile app for Android and iPhone.
  • Visa USA Exchange Rate Calculator
    Use the Visa currency converter (exchange rate calculator) to quickly estimate the rate you may receive when you use your Visa card abroad.
  • MasterCard’s Currency Conversion Tool
    Look up the mid-market exchange rates of global currencies for transactions processed by MasterCard. Made available for European financial compliance.

Disclaimer

Capital One Bank, Capital One 360, Visa, and MasterCard are registered trademarks of their owners. All other trademarks and copyrights are protected by law. The links in this article are NOT affiliate links and all opinions are my own. Before applying for any bank account or credit card always read the terms and conditions, FAQ, and fine print in the application before proceeding. The advice contained in this article is not a solicitation. You agree that the author and Meliovation LLC are not responsible if you open an account or are declined for the financial products and services listed, nor for any fees or transaction issues of any type now and in the future. The advice in this article is deemed accurate as of the time of its publication. 

 

  • Kelly says:

    Thank you for the wealth of information! If you are making an online reservation for a rental car prior to picking up your car in Europe, there is an option with Hertz to pay at the counter (in Euros), or it says to Save $ Now and Pay Now in US dollars. In this case, what do you recommend?

    This is a message I see when selecting Pay Now: When you pay in advance for your qualified reservation, your Save $ Pay Now discount will automatically be applied to your rate. If modifications to Save $ Pay Now reservations result in changes to the prepaid amount the difference will be charged or credited to your credit card.

    Thanks for your help!!

    • Thanks for the complement! Renting a car in the USA and Europe is never as easy and stress-free from my experience. There are too many hidden traps when it comes to insurance, additional drivers, rates that vary from site to site (e.g. Hertz.com and Hertz.ie), as well as currency conversion fees as you know.

      I have seen the offer to Pay Now versus Pay Later on several recent rentals and it can be a tricky decision to make. And I hate paying more than I have to. Of course convert the currencies yourself on a site such as Xe.com to see how much you are saving in your home currency. I’ve seen pay now and pay later rates that are both in the same currency (e.g. Euro) and ones where the pay at location rate is in the foreign currency and the prepaid rate is in U.S. dollars.

      For a business trip rental it is usually preferable to pay later in order to avoid any cancellation fees or other charges. That is what my wife has done for all her work trip bookings on Hertz since her plans may change at the last minute. I often prefer to pay at the counter for vacations as well since I am not a fan of bookings that cannot be cancelled.

      The prepaid rate is similar to hotel reservations whether you book direct or on sites like Expedia and Booking.com. It is always tempting to get a lower (or what is often a guarantee of the “lowest”) rate if you pre-pay for the hotel stay, but that means you cannot cancel without penalty. Car rental change and cancellation policies vary greatly so you always have to read the fine-print. Even after reading the terms and conditions you may also be tempted to call on the phone to be sure. I’ve done that on several occasions.

      Also be aware that while car rental companies may offer this Pre-Pay Online option, it typically does not include “extras” which you still must buy at the counter. I often buy the Super CDW or Super Cover in Europe to reduce my damage liability to zero or you may need to add drivers to the contract which may or may not cost extra depending on your reward program membership.

      So I’m sorry I can’t give you one answer that fits all rental car companies, destinations, and rate quotes. Do review the advice online alongside what is offered at your rent-a-car companies to make the best decision for your own trip.

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