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Overseas transaction fees give me a headache

by Karen on September 8, 2009

credit cardsWe’re not going to start booking until January at the earliest, but right now we’re doing a lot of research for our trip to Europe in May. That means we’re tracking airfare, putting together a loose itinerary, and researching the logistical aspects of traveling to another country.

One of the biggest headaches of traveling to another country is money. The last thing we want to do is carry all of our money in cash. A lost or stolen bag could be catastrophic. Taking cash out of an ATM is expensive, so we also don’t want to withdraw a daily cash allowance. Traveler’s checks seem like a hassle, but using a debit card or credit card will result in wasteful overseas transaction fees.

We’ve determined that the best way for us to handle money will be to carry a small amount of cash in the local currency, and then use a credit or debit card for the rest of purchases. We’ll have cash saved for the trip, so we’ll pay off the credit card immediately when we get home, but we don’t want to be stuck with ridiculous overseas transaction fees.

What are overseas transaction fees?

Here’s how it works: If you use a debit or credit card in another country or with an international company, you pay a transaction fee of 2-3% to the bank. On top of that, you’ll pay another 1-2% transaction fee to the credit card company backing your card (Visa or Mastercard for example). These fees are in addition to any applicable sales tax on your purchase.

Check out this CreditCards.com article for current transaction fees on popular credit cards as of June. Here’s what we’d pay for cards we currently hold:

  • American Express: 2.7%
  • Bank of America: 3%
  • Wachovia debit card: 3%

If we spend $4000 total on hotels, food, and other expenses overseas, we’d be paying a total of $108 to use the American Express card. American Express is only accepted on a limited basis, so we might end up having to use our Visa Bank of America card or Wachovia debit card, which would cost $120 in fees. That may not sound like a lot, but we could do a lot with that money in terms of food or entertainment. If there’s a way to avoid paying it in fees, I’d like to try.

If we withdraw cash every day, we’ll pay $5 per ATM transaction plus 2.7%-3% for purchases we have to charge, like hotels. That’s $60 in ATM fees over 12 days, plus a fee to the bank that owns the ATM for each withdrawal (usually $2-$3) for a total of $96 minimum. It’s also likely that we’d pay $2 per transaction to Wachovia, bringing the total to $120.

How can we avoid fees all together?

Capital One is the only company that doesn’t currently charge overseas transaction fees. Capital One doesn’t charge a fee, and they even waive the fee imposed by Visa or Mastercard. We don’t have a Capital One card, so we’d have to apply and open a new account just for this trip.

So I’m torn. We’d pay off the balance immediately when we return home, but still. I don’t know how I feel about opening another credit card for this trip. Is it worth it to save a little over $100? When I think about spending $5000 on a vacation, $100 seems like chump change, but then I think about what we could do with that money in Europe. On a frugal vacation budget, $100 can do a lot.

My other concern is with the changes happening in credit card companies, it’s possible that Capital One will suddenly start imposing overseas transaction fees.

Like I said, we won’t be booking anything until January, which means we have a few months to wait and decide. But even if we apply for the card and book our hotel in January, that doesn’t mean Capital One won’t suddenly start imposing a fee before May. Then we’ll have a new credit card for nothing.

What do you think? Is opening a new credit card worth possibly saving $108-$120, or should we just suck it up, use one of the cards we have, and factor the fees into our budget?

Photo by andresrueda

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Europe Update: 5 months to go
December 6, 2009 at 12:42 pm

{ 3 comments }

1 Viviana September 8, 2009 at 9:24 am

I am an expat living in London so I am moving money between countries on a semi regular basis. The best thing I found out is that some banks have sister banks overseas – for example if you bank with Bank of America you can make free withdrawals from Barclays in the UK. I usually get a fairly good exchange rate. I hope that helps.
.-= Viviana´s last blog ..Menu Monday 7th Sept 2009 =-.

2 Carol September 8, 2009 at 11:13 am

whatever happen to traveler’s checks? is that something that would be a possibility?

3 The Non-Student September 8, 2009 at 3:09 pm

When I lived in Italy, I just used my debit card and took out the max amount of Euros I could. Sounds like you don’t want to risk carrying all that cash, but honestly it was the easiest thing for me. I never had any problems.
.-= The Non-Student´s last blog ..Our (Non) Labor Day Weekend =-.

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