A few commenters have argued that Visa charges more for foreign currency conversion than MasterCard — that a Visa with ‘no foreign currency conversion fees’ isn’t really because Visa marks up their exchange rate by 1%.
Traditionally credit cards have earned money on foreign purchases in two ways:
- Exchange rate. They may not give you as favorable a rate as they’re getting, so they profit on the exchange.
- Surcharge. This is what’s referred to as the foreign transaction fee, whether an additional (often 3%) change is assessed after the exchange rate is calculate.
It’s worth noting that a credit card with foreign transaction fees will add the surcharge onto purchases made outside the US that are in US dollars.
Some card issuers stopped charging surcharges because:
- They wanted to appeal to high spend cardholders who travel abroad
- They found that the fees often lose money — such cardholders put the cards at the back of their wallet when they travel and don’t put them front of wallet again when they come back to the U.S.
When banks say their cards have no foreign transaction fee, they mean there is no surcharge. But that doesn’t mean any card with no foreign transaction fees is as good as any other — you still want to get the best exchange rate.
I’m testing this out on a few trips. I mentioned in the comments that I’m experimenting with comparisons, and I’ve had a couple of folks ask about the status of this in the comments and also by email, so I thought I’d provide an update.
I’m waiting for some card statements to close. I don’t want to go off of interim information, and Chase’s website doesn’t show me the original foreign charge or the conversion rate (only the US dollar equivalent) as far as I can tell outside of a card’s monthly statement.
In the meantime, a few data points suggest:
Visa vs. American Express: No difference.
- I received the same rates with a Chase Visa as American Express in Thailand.
- I received the same rates with a Chase Visa as American Express in the UAE.
Visa vs. MasterCard: Visa gave a less favorable exchange rate.
- I paid 1% more in Paris to use a Chase Visa compared to a Citi MasterCard.
I’ll be back from the UAE and also Asia shortly and will continue the comparison. I want to see whether this pattern holds, and whether or not it’s country-dependent. I should have a couple more countries over the next week.