The credit card fee game
Choose your poison: annual fee or transaction fee? Or a loyalty program that doesn’t trade in travel. What to do?
We admit it: We’ve hounded you for years about having a credit card that doesn’t charge foreign transaction fees, which can increase the price of your overseas purchases by 3% or more.
That’s the amount the financial institution adds to cover its expense in converting foreign currency to U.S. dollars. You will undoubtedly point out that this is a little ridiculous and duplicitous, especially because no one is sitting around with pencil and paper making those calculations.
Besides, 3% is nothing, except when it’s not. And that includes, for example, paying a big hotel bill or buying that priceless artifact you simply must take home with you.
Then it’s something. If you do the math — oh, those hated words — you’ll pony up $270 on a $9,000 bill. In which case you’re probably wealthy enough to shrug it off.
What you want, we’ve said over and over, is a card that does not charge those foreign transaction fees.
End of discussion? Not quite, said Brian Karimzad, vice president of research at CompareCards.com.
The good news: More and more cards have dropped that fee, he said. The bad news: Many of those cards charge an annual fee of $90 or $95.
The question now before you, it would seem, is whether you should spend the money for the annual fee card or suck it up and pay the foreign transaction fee.
But there’s a third option, Karimzad said: Find a card that charges neither an annual fee nor a foreign transaction fee.
“We found over a dozen cards from major issuers that have the best of both worlds — no foreign transaction fee and no annual fee,” he said. “That’s a more recent development in the world of credit cards.”
You can get a look at this list at lat.ms/noforeignfeecards. Easy. Problem solved. But not so fast, Karimzad said. You’ll notice the first card on that list is the Amazon Prime Rewards Visa Signature Card. Nothing wrong with that, but it’s rewarding your loyalty not to an airline or a lodging but to Amazon.com and Whole Foods.
Before you choose any card, check the fine print to make sure you will be billed in the currency of the country you’re in. Otherwise, that bank card may assess you in U.S. currency, and you’ll have no control over the exchange rate, which, we can pretty much promise, won’t be favorable. This sleight of hand is called dynamic currency conversion, and it can sap some of the strength of using a credit card.
Beyond that issue, if you’re seeking to be rewarded for loyalty in the travel arena with a no-fee card, your choices are fairly narrow. Some of the cards are co-branded — that is, you take out the card, spend X amount and get X number of points for a cruise, hotel or even an airline ticket.
The downside is that, unlike the cards for which you pay $90 or $95 a year (or more for a premium card), you aren’t being as handsomely wooed and rewarded for your loyalty. At least, not just yet. Although we don’t have a multiplicity of card choices that spare you the annual fee and the foreign transaction fee and reward you mightily for your loyalty, that day may not be too far away.
Because, as Karimzad noted, travel credit cards have mostly been driving this loyalty bus. “Over the last five years, airlines and hotels have been able to extract record-size deals for the privilege of offering their customers points in that travel category,” he said.
It’s not just the points that are the allure; it’s the privileges that go with them, be that priority boarding or, with some higher-end cards, airport lounge access or late checkout at hotels, he said.
The day may come when you get your trifecta of rewards — no fee, no foreign fee, plenty of points to boot.
Until then, there’s one sure way to avoid the foreign transaction fee: a quaint notion called cash.
Still, if you use an ATM to get that cash, you may be assessed a foreign transaction fee.
Solution: Set up an account that doesn’t charge for the privilege of using your money abroad. Readers often tout Charles Schwab as a model. Fees for foreign transactions usually are returned to the customer in the form of a rebate.
Money in its bank is like having money in your bank. And the more money you keep in your own hands, the more you have to enjoy yourself, wherever you are.