Credit cards charge for foreign sales

Credit cards can be indispensable during a trip abroad.

But whether you’re planning to browse in Parisian boutiques, dine out in Madrid or museum-hop through Florence, here’s something to keep in mind: Using plastic for purchases in foreign countries comes with an extra cost.

Credit card companies tack on surcharges for foreign transactions and currency conversions, and while the charges aren’t new, they weren’t always so obvious to consumers. In the past, they were typically hidden or buried within other charges.

Last year, the fees started appearing as separate line items on credit card statements. And in some cases, they also increased – to about 3 percent of the total cost of the purchases in foreign shops and restaurants.

“I’m used to doing a lot of traveling for business, but this was a surprise to me,” said Leon Segal of Randolph, N.J., who frequently travels overseas. He discovered the fees, which he described as “big,” after returning home from a trip to Israel last year.

But don’t rush off to your bank for vacation euros just yet.

Most of the top-selling travel guides still strongly recommended using credit cards for major purchases in foreign countries. A single plastic credit card, supplemented by an ATM card, has long been considered the easiest, safest and generally best deal for vacationing consumers.

Ed Perkins, an Oregon-based contributing editor for SmarterTravel.com, said while there’s little reason to justify the surcharges, credit cards are still the best deal for travelers.

“Overall, even with a 3 percent fee, you spend less on foreign exchange with plastic than exchanging currency or using traveler’s checks,” Perkins said.

The credit card companies consider the fees to be part of the cost of modern conveniences and global technology – similar to the fees for using automated teller machines.

“The fee pays for the ability to travel anywhere in the world and make a purchase because the MasterCard name is behind the transaction,” said Sharon Gamsin, a MasterCard spokeswoman.

MasterCard passes a 1 percent fee onto its issuers for processing cross-border transactions and currency conversions. The banks issuing the MasterCard, however, may hike the currency conversion fee another 1 percent to 3 percent of the total purchase price, according to consumer advocates like Perkins.

Visa, which has 1.3 billion cards in circulation around the world, charges a 1 percent fee for currency conversion, and the bank that issues the card may charge as much as 3 percent more for the foreign transaction.

Some credit card-issuing banks, namely Capital One, don’t impose surcharges.

“For our customers traveling abroad, there is zero fee for foreign exchange,” Capital One spokeswoman Pam Girardo said.

Perkins said when traveling through England a few years ago, he searched out a no-fee card to avoid extra expenses during his trip.

“I’m not sure how many people will go through all the fuss and feathers of trying to avoid the fees, but some people probably will,” he said.

Segal said he plans to continue using credit cards for traveling, but he may do a little homework before he leaves home with his plastic: “What I care about is getting the best value.”

One thing more credit card-carrying travelers may encounter this summer during trips to foreign countries is so-called “dynamic currency conversion,” a service offered by merchants to provide an on-the-spot calculation of the purchase in U.S. dollars. The conversion occurs before the charge is passed on to your credit card company.

While the immediate conversion to dollars may seem helpful, it’s not necessary and could increase the total cost of making the purchase, critics say. In some cases, merchants will be setting their own rate of exchange.

“Do not do it,” Perkins said emphatically. “Banks are going to merchants overseas and pushing it as a new revenue stream. It’s really a sneaky gouge.”

Merchants are supposed to offer the service to their U.S. customers, rather than doing it automatically – Visa requires merchants to inform the customer – but Perkins said it pays to be aware of the charge.

“You may have to argue a little bit to avoid it,” he said.

The credit card companies insist the customer is the one to decide whether the merchant makes the conversion.

“It’s something that’s up to the customer,” Visa spokeswoman Rhonda Bentz said. “The merchant needs to inform the cardholder there is a fee or what the fee is – ideally both.”