A few days ago I wrote about some of the research I’ve been doing to prepare for a trip to Spain. That post focused on some of the challenges of using U.S.-issued debit cards in Europe. In this post I’ll share what I’ve learned about another concern when using credit and debit cards: fees.
There are so many fees associated with banking these days (and they can change so often) that’s it’s often hard to keep track of them. In doing my research into fees I may encounter while banking in Europe, I was also confused by the lack of consistency in terminology.
- This Rick Steve’s Europe article refers to both “international transaction fees” and “currency conversion fees.”
- This Bankrate.com article refers to “currency conversion fees,” while a comparable article from Indexcreditcards.com addresses “international transaction fees.”
- Another article on creditcards.com covers “foreign transaction fees.”
No matter what they’re called, it’s impossible to conduct a transaction in a currency different from the one you have in hand without paying some sort of fee or penalty. Even if you start out with cash, you’ll have to pay a fee to convert it to the local currency. Using one of the major credit card brands — Visa, MasterCard, or American Express — there is a minimum 1% fee levied on the transaction. That fee can even be as high as 2-3%.
I’m OK with those fees, actually. There is a business cost to the transaction and someone must pay it. What I’m not supportive of, though, are the extra fees charged by the bank who issues you the credit card. The bank does nothing here, but often charges an additional percentage-based fee on the transaction. If you read through the links above, though, you’ll see that some banks are a better deal than others.
Capital One does not charge an extra fee for “foreign transactions,” and for this reason I opened a new account with them. My first statement period was a bit rockier than I’d like, but so far I’m managing and I’m sure I’ll be glad to have their fee-free service when running up bills for lodgings and transportation while in Spain. The card I got through Capital One is actually a rewards card, too, so I should earn some cash back on the transactions.
But I think I’ll also carry my work issued American Express card with me for emergency back up. This card is only supposed to be used for business expenses, but I think my employer would be OK with me using it for an emergency. The fees for using American Express are more than those with my Capital One MasterCard, but less than they would be for the Visa card I still have from a small U.S. bank. Unfortunately my beloved Discovercard (beloved due to its cash back rewards, only) will be useless in Europe.
The other place where people usually get hit by fees is when using ATMs to get local currency. Most travel sites these days recommend forgoing the old approach of loading up on traveler’s checks or carrying lots of U.S. dollars to exchange along the way. If you’re going to a major European country, you should have no issue with finding an ATM where you can securely get Euros.
Many U.S. banks will also dig into your pocket to secure additional fees for these transactions, too. I ran into this issue just a few months ago while taking a business trip to Toronto. I didn’t think about needing local currency for anything, but it ended up I needed to get some Canadian dollars for cab fare one evening. One trip to the ATM of a major bank for $60 resulted in nearly $7 in fees: a flat $5 from my bank, plus an additional $1.75 fee from Visa for the currency conversion.
Note that there was no fee from the Bank of Montreal terminal from which I retrieved the cash. Apparently only in the U.S. are we subjected to additional fees from ATMs that aren’t branded by the bank in which we keep our accounts. When using an ATM in Spain to get Euros, then, I’ll still be subject to the 1-2% fee leveraged by Visa or MasterCard. The trick is to avoid add-on fees by my bank for not using an ATM with their logo on it.
If I had thought to do the research before leaving for my business trip to Toronto I would have discovered that my little used credit union account is the best value for these currency-securing transactions. I’ve had an account at this credit union since I was a child, and I nearly closed it recently because it is not useful for me in daily life. (There are no branches or ATMs anywhere near my house, and there is only one ATM that is remotely close to my office downtown.)
But I’ve very glad I did not close it now, because they don’t charge any fees for using ATMs that are not branded by them. All the fees associated with ATM use of this account here in the U.S. are charged by the banks that “own” the ATM at which I would perform the transaction. How did I confirm this? I called the credit union and I grilled them about their fees. Yes, I will still pay that 1-2% currency conversion fee to Visa, but I won’t pay the credit union any additional flat rate or percentage on the transaction.
So, I’ll still follow common sense rules about ATM use, such as using the ATMs associated with major banks and not travel companies. But at least I can feel comfortable traveling around with only small amounts of cash while in major cities that have plenty of ATMs. And hopefully that will make me less of a target for theft.