Update: This offer for the Citi Prestige® Card has expired. Learn more about the current offers here.
Overall I’ve found that it has become significantly easier to make purchases abroad over the past few years. Going back many years I’d make most of my purchases abroad using cash (which I’d withdraw from an ATM once I arrived at my destination), given how many credit cards had foreign transaction fees, how many places didn’t accept credit cards, etc.
However, I’ve found that has changed significantly over the past several years, to the point that I’ve taken some trips where I haven’t withdrawn any cash at all.
So, what has improved? There are a lot more cards with no foreign transaction fees, a lot of cards offer big bonus points for foreign purchases, and more places than ever before accept credit cards.
However, making sense of credit card foreign transaction fees can be complicated. Reader Jim emailed to share his confusion regarding this, so I figured I’d write a post sharing the basics of getting the best value on credit card purchases abroad:
Always use a card with no foreign transaction fees
This should be obvious, but always use a credit card without foreign transaction fees. Cards with foreign transaction fees typically charge a 1-3% fee for the privilege of processing a transaction. Back in the day it was rare for credit cards to have no foreign transaction fees, while nowadays there are so many great cards without these fees, even mid-range cards.
The best mid-range cards for purchases abroad include the Chase Sapphire Preferred® Card, Ink Business Preferred℠ Credit Card, Citi Premier℠ Card, Starwood Preferred Guest® Credit Card from American Express, etc.
Don’t settle for just no foreign transaction fees
It’s exciting that so many credit cards don’t have foreign transaction fees, but don’t settle for just that. You can also earn a ton of points for purchases you make abroad by maximizing bonus categories on the following cards, which have no foreign transaction fees:
- The Chase Sapphire Preferred® Card offers double points on dining and travel
- The Chase Sapphire Reserve® offers triple points on dining and travel
- The Ink Business Preferred℠ Credit Card offers triple points on travel on the first $150,000 spent per year
- The Citi Premier℠ Card offers triple points on travel, and double points on dining and entertainment
- The Citi Prestige® Card offers triple points on airfare and travels, and double points on dining and entertainment
While there are Amex cards with great bonus categories, keep in mind that many of these apply exclusively to US purchases. For example, the American Express® Gold Card offers 4x points on dining, but only at US restaurants.
Always pay in local currency
Whenever you make a purchase with a US credit card you’ll be asked whether you want the purchase charged in USD or local currency. This is known as dynamic currency conversion. Always have the purchase charged in the local currency, and not in USD.
This might seem counterintuitive to some, but the reason is because the rate you’re given in USD will almost always be significantly worse than the actual exchange rate. In some cases they just give you a really bad exchange rate, in other cases they add on a fee of a couple of percent, etc.
If you’re using a card with no foreign transaction fees, there’s simply zero reason to ever have them charge you in USD. Also remember that you have the right to make this choice, so never let a merchant force you to pay in USD.
For example, a couple of years ago I shared my experience at the Hilton Queenstown, where the hotel forced me to pay in USD. The total was 1,163NZD, which the hotel converted to 806.96USD.
The actual conversion rate for 1,163NZD at the time was 762.57USD, so that cost me almost 45USD. RIDICULOUS!
Not all foreign exchange fees are created equal
This is where things get a bit complicated. You always want to pay in local currency, but that doesn’t necessarily mean you’re getting the best conversion rate. Different payment processing systems use different exchange rates, as I explained in a previous post. It’s actually not that they’re trying to rip you off, but rather that they take different approaches to foreign transactions:
- Visa guarantees the exchange rate the day you make the purchase, but has a built in cushion since the transaction typically only posts a couple of days later, so exchange rates could change, meaning there’s some risk for Visa
- Mastercard charges the exchange rate the day the transaction posts (often a couple of days after the transaction), so since they’re charging whatever the rate is, the cushion is much smaller
Fortunately both processing systems let you view their exchange rates online, so you can crunch the numbers for yourself:
However, I don’t believe Amex has a similar conversion tool.
What’s the moral of the story? For a volatile currency the difference can sometimes be significant, but usually the rates are within one percent of one another. All else being equal I find that Mastercard has better rates than Visa, but often the difference is negligible.
Amex isn’t accepted a lot of places
I love Amex cards in general, though it’s important to understand that in a lot of countries Amex cards aren’t widely accepted, especially with smaller merchants. So if you do plan on using an Amex card abroad, be sure you have a backup, since it may not be accepted everywhere.
For example, my favorite “foreign purchase” to make with Amex cards is airfare using The Platinum Card® from American Express, since it offers 5x points on airfare. However, over the years I’ve learned that quite a few airlines don’t accept Amex cards. This is even more true of smaller merchants, as during my recent trip to Italy almost no restaurant accepted Amex.
I know this can be complicated for some, though to simplify it as much as possible:
- Use a credit card with no foreign transaction fees that offers the most points on dining and travel, which is what many purchases abroad are categorized as, and be prepared for Amex cards not to be accepted
- Always have transactions processed in the local currency
- Mastercard conversion rates are sometimes marginally better than Visa conversion rates, though that can easily be offset by a better return in terms of the rewards offered
Anyone have any other tips for using credit cards abroad?