Mission Possible: Avoiding Foreign Transaction Fees

Posted by: Melissa W. // April 30 2010

Ready for a much-needed getaway, I booked a resort in the British Virgin Islands with my Bank of America card. As if the credit companies aren’t full of enough surprises these days, a new “gotcha” in the form of a “Foreign Transaction Fee” appeared on my credit card statement this month.

I immediately went into full investigation mode.

As it turns out, Bank of America charges a 3% fee for any transactions processed through a foreign bank – so the resort deposit, as well as any on-island charges, will be subject to an additional 3% charge. Super – just the hit my travel budget needed.

My next call was to American Express to see how much they charge for foreign transactions. It was a slightly-less spicy 2.7%. Also a noteworthy tidbit – Amex rolls the fee into the vendor charge. (Have fun sorting that one out.)

The “fee” in question consists of two parts. First is a 1% charge courtesy of Visa and Mastercard. The second part is a 1%-2% fee that the credit card issuer charges. So, most fees fall between 2% and 3%.

Once I was on to their game, I went in search of alternatives.

Bank of America offered me two solutions. The first involved opening an American Express Card through Bank of America – this card charges a 1% foreign transaction fee. This may have been plausible, except that one of the resorts we’re staying at doesn’t accept American Express. This means that the problem would only be 50% resolved. Plus, there’s no way I can figure out ahead of time which merchants in the islands will accept American Express.

The second option Bank of America suggested was to purchase American Express Travelers Cheques with my credit card. This also didn’t seem like an awesome solution – there are fees to purchase them, they’re not accepted everywhere, and I’d like to avoid an additional level of complexity while traveling.

In the course of my research, I did uncover two acceptable solutions from other banks.

Option 1: Capitol One offers cards that don’t charge the dreaded foreign transaction fee, but read the fine print closely. There are plenty of claims on the web that this doesn’t apply to all of their cards, so be careful.

Option 2: A conversation with TD Bank revealed that there are no currency conversion charges for using the debit or Visa function of their cards. Additionally, there’s no conversion fee for ATM withdrawals. (ATM transactions are still subject to fees by the ATM owner.)

Although Bankrate.com publishes the currency conversion fees for most of the top credit card issuers, I discovered that the listed TD Bank rates were incorrect. I highly recommend speaking with your bank directly, as well as taking note of who quoted the rate to you. Two calls to TD Bank yielded two different answers. You can bet I took names.

Here’s an action plan if you’re traveling internationally:

Contact your credit card issuers prior to international travel to find out what fees are charged.
Call the resort or hotel where you’ll be staying to find out if the credit card charges will be processed through their local bank, or through a US bank. During my Maya Tulum yoga retreat in Mexico last fall, the credit card transactions were processed through their Georgia-based home office. Fees avoided!
Calculate the total cost of your trip times the credit card fee, and then decide if any hoop-jumping is in order. For a $5,000 vacation, a 3% fee results in $150 in charges. This may not warrant opening a new line of credit. But if you’re a frequent international traveler, those fees could add up fast.

Hopefully these steps can help you avoid excessive fees as you travel the globe. Feel free to leave your comments, suggestions, and rants…

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