No Foreign Transaction Fee Credit Cards: 5 Things To Consider

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It’s only in the past few years that premium credit cards without foreign transaction fees have become the norm rather than the exception. For a long time I was thrilled to have a card that didn’t charge me ~3% just for making a purchase abroad, but nowadays I can be much more selective. When I’m traveling abroad I’m not only looking to avoid fees, but I’m also looking to maximize my points and get as much travel protection as possible.

With that in mind, I figured I’d share five things to consider when choosing a credit card without foreign transaction fees.

Are you using a MasterCard?

People assume that all cards without foreign transaction fees will get you the same conversion rate. That’s not the case. While the foreign transaction “junk” fee as such is waived, not all processors use the same conversion rates.

As I’ve explained in a previous post, typically MasterCard has the best exchange rates, often significantly lower than what’s offered by Visa. Rumor has it that the reason for this discrepancy is as follows:

  • 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

The point is, the conversion rates can sometimes differ by ~1%, which can be pretty significant. Therefore there’s value in using a MasterCard like the Citi Prestige® Card or Citi ThankYou Premier Card for your foreign purchases.

To find out more, you can compare the conversion rates for yourself using the MasterCard Currency Conversion Tool and Visa Currency Conversion Tool.

MasterCard-Currency-Conversion-Tool

Are you paying in the local currency?

This doesn’t differ between cards, but rather is a universal rule that should always be followed, in my opinion. When you’re making a purchase abroad with a card that has no foreign transaction fees, always make the purchase in the local currency. Often you’ll be given the option of whether you want to make the purchase in your home currency or local currency, and you’ll always want to choose the latter.

Why? Because they’ll give you a horrible exchange rate. For example, during a hotel stay last year, I was forced to pay in USD, and ended up paying almost 6% more as a result. There’s absolutely no reason to pay in your home currency — it’s ridiculous that it’s even offered.

Currency-Conversion-Scam-2

Does your card offer any sort of travel protection?

While it’s worth considering buying travel insurance, it’s worth noting that many credit cards offer some significant travel coverage as well. This coverage can range from car rental insurance to baggage delay insurance to trip cancellation/interruption insurance.

Check your cardmember agreement, as some cards have surprisingly good benefits in this regard. Make sure you read the fine print, though, because some cards only cover you for these benefits when you pay in full with your card, and not if you’re redeeming points.

Two of the best cards when it comes to travel protection are the Citi Prestige® Card (details here) and the Chase Sapphire Preferred® Card (details here).

Chicago-Delays

Are you earning bonus points for your foreign spend?

Arguably the best way to earn points is through credit card spend, and that’s the case even when you’re traveling abroad. Don’t just settle for no foreign transaction fees, but pick up bonus points as well.

Which card is best for you will depend on what categories you spend most in while abroad.

For example, the Citi ThankYou Premier Card offers triple points on travel and double points on dining and entertainment, which encompasses a vast majority of what I spend money on abroad.

For the purposes of the card, “travel” is defined as follows:

airlines, hotels, car rental agencies, travel agencies, gas stations, commuter transportation, taxi/limousines, passenger railways, cruise lines, bridge and road tolls, parking lots/garages, campgrounds and trailer parks, time shares, bus lines, motor home/RV Rental and boat rentals

Then “entertainment” is defined as follows:

sports promoters, theatrical promoters, movie theaters, amusement parks, tourist attractions, record stores and video rental stores

However, for airfare and hotels I’d still rather use the Citi Prestige® Card, which offers triple points in those categories, and also comes with significantly better travel protection.

For more on the cards offering the most points for purchases abroad, see my post about five awesome credit cards with no foreign transaction fees.

Radisson-Blu-Royal-Copenhagen-17

Does your card have Chip & PIN technology?

While credit card use is more widespread in the US than anywhere else, we’re also way behind when it comes to credit card technology.

A vast majority of US credit cards don’t have Chip & PIN technology. You might notice that many credit cards the past few years have chips in them, but that’s not the same. That’s mostly Chip & Signature technology, where you insert your card and then sign.

What’s the benefit of Chip & PIN? Many automated kiosks, particular in Europe, only take Chip & PIN cards. These aren’t common in the US, though it’s an area where Barclaycard is a leader. Specifically, JetBlue Plus Card and Barclaycard Arrival Plus™ World Elite MasterCard® both have Chip & PIN technology.

TGV-Train-Brussels-Paris-06

Bottom line

As you can see, there are a lot of factors to consider when deciding which cards to use abroad, and everyone has to decide what works best for them.

My personal strategy is as follows:

  • I use the Citi Prestige® Card for airfare and hotel purchases abroad, as I get the best conversion rate thanks to using a MasterCard, get great travel protection, and earn triple points
  • For other travel, dining, and entertainment purchases I use the Citi ThankYou Premier Card, as I get the MasterCard conversion rate as well as triple points on travel and double points on dining and entertainment

Do you have a single “go to” card for foreign purchases?

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Comments

  1. Lucky

    How does Amex compare to Visa and MasterCard?
    Amex Platinum for example doesn’t charge foreign transaction fees.

    Thanks!

  2. Lucky – any reason you use the Premier over the Prestige for dining out and entertainment purchases? Doesn’t the Prestige also offer 2x on those categories?

  3. To your point on the Chip and PIN technology gap, it seems crazy to me to have a chip without the PIN protective feature. What’s the point? American travelers are convenient targets to thiefs because our cards are not PIN protected. I have the Barclay AA Silver Aviator MC and it’s not PIN, only chip. Does anyone know if our cards will eventually become both PIN and chip?

  4. Hmm, not sure why you continue to proclaim how good the travel insurance benefits when they are very poor in coverage award travel or stays vs. Chase Sapphire Preferred. One of the things I love about your blog is that You always seem to try your utmost to be honest and ethical; isn’t some type of qualifying comment on the claim in order?

  5. @Donna: The US is years behind Europe and some Latin America countries when it comes to credit card technology. While they have chip&PIN technology for many years we are now entering in the chip&signature era which is a joke. Before you had to swipe the card which would take less than 2 seconds to do it. Now you have to insert the car in the chip reader and the operation takes at least 30 seconds if not more until you can get your card out. Then you are prompted to sign on the screen. I still cannot understand what is the difference between swiping the card vs inserting it since you still don’t have to type any PIN so anyone that has your card can use it anywhere.

  6. I don’t think you are being fair with the statement on exchange rate. Yes MasterCard may sometimes offer a 1% better rate than VISA, but how prevalent is it? Your prior post on this topic also found the opposite case being true. Do you feel confident that MC consistently offers a significantly better exchange rate?

    Here’s a write up with quite a few data points. Directionally it agrees that MC is “better”, but the average difference is rather minuscule in the 0.1% range:
    http://hungryforpoints.boardingarea.com/2016/06/foreign-exchange-rates-visa-vs-mastercard/

    Most of the data points from your prior post also agree that MC’s advantage is usually in the 0.1-0.2% range.

  7. I think that more data points need to be taken before we can proclaim that MasterCard is better than Visa for foreign transactions, and it also makes a difference on which bank issues the card as well.

    I recently compared a series of Euros purchases I made with a Chase Visa, Chase MC, and Citi MC. On the days that both a MasterCard and a Visa were used, MasterCard was better than Visa on 4 of the 6 days, but most of the time the difference was negligible:

    When Visa was on top, it was only an average of 0.267% better than MasterCard. When MasterCard was on top it was only an average of 0.117% better than Visa, although there was a single day where a single MC charge did win by a full percent. Compared to the rest of the days, that appears to be more of an outlier than a rule so I have excluded it from the average.

    So we are talking a difference of 12-27 cents for every hundred $$ you spend in either direction. Not enough to stress about. You might as well flip a coin to decide which card to pull out of your wallet for any given purchase because there are no guarantees.

    One thing to note, on 2 days I used both the Citi MC and the Chase MC. The Chase MC beat the Citi MC by an average of 0.24%.

  8. Either I missed it before or you modified the blog re: travel insurance benefits, well written now.
    My apologies if it was there all along.

  9. While chip-and-PIN tech should be adopted in the U.S.—the holdup being the fact that middlemen get a smaller cut due to the more secure nature of requiring a PIN—the reason that chips were adopted at all is because the primary type of card fraud in the U.S. was/is skimmer or software capturing card information. Simply encrypting this data was determined to be effective enough at reducing card fraud. Overseas travel is still relatively unusual for Americans.

    For that matter, chip-and-PIN isn’t quite as effective at preventing card fraud as people have been told. While in theory chip-and-PIN is quite secure, actual implementation has left a number of weaknesses that have been successfully exploited. Good luck, then, proving that you didn’t make that transaction. After all, it was secured with a PIN, right?

  10. Does the Barclaycard really work in unattended train station kiosks and gas stations in Europe?

    I was thinking of getting the First Tech Credit Union chip-and-pin Mastercard because it’s set up to use chip-and-pin first (rather than chip-and-sig, like the Barclaycard) and is therefore more likely to work in kiosks.

  11. Lucky, I was going to comment that the Barclays AAdvantage Aviator cards also have the chip and PIN feature, and then I saw Donna’s comment, so maybe they are rolling this out gradually, or maybe the PIN on my card is something different (e.g., an ATM PIN),

    @Donna – For my AAdvantage Aviator Red MasterCard, I received a new card with a chip and set a PIN for it in August 2015.

  12. My Barclay AA Aviator PIN and Chip card worked (with PIN) at gas stations in France last month and also works in the train station kiosks in Italy. Anywhere else in those countries, I must sign and no PIN is used. And at one restaurant in France the card was rejected because a PIN could not be confirmed.

    And even if overseas travel is considered “relatively unusual” for most Americans, I expect an Airline credit card to be routinely used by people who travel outside the USA. They should at least issue an international version that works on PIN technology overseas.

  13. I second Elizabeth’s observation. I analyzed across ~150 transactions abroad in 4 different currencies, and the average exchange rate difference between VISA and MasterCard was around 0.1%. Yes MC was “better”, but the difference was minuscule. For smaller purchases they simply get lost in the rounding, and chances are other differences between your credit cards weigh far more than this 0.1%.

    Lucky’s earlier post on this subject matter had a bunch of data points that showed (1) MC was usually better, but really not by much, (2) VISA was sometimes better. Really similar to Elizabeth’s and my observations. But the conclusion to declare MasterCard superior is overstating the worth of this difference.

  14. It’s shocking that the Aviator card is one of only two PIN capable rewards cards in the US. Most kiosks in Europe won’t take the signature cards, as the long line of Americans waiting for a ticket agent at the AMS rail station indicates.

    I don’t fly American much, but I keep that card for the PIN function alone. At least I’m earning some sort of points.

  15. Does the foreign transaction fee is really make a significant difference? It’s at most just $10-$30 out of a $1000 purchase right? Hardly enough to cover the a meal on your domestic flights.

  16. You just have to ask Barclay’s to mail you the PIN for your Aviator. I have the AAdvantage Aviator Red, and it worked fine at the metro kiosk in Paris. However, my sister was unable to use her Aviator at the metro kiosk because she had not requested her PIN. The Paris metro kiosk required that she enter her PIN, which she did not know. However, I successfully bought metro tickets both with a non-PIN card (probably Citi Premier) and with the Barclays Aviator Red (by using the PIN).
    Good idea to request your Aviator’s PIN in case a kiosk or other device determines that the card is chip and PIN and thus requires the PIN.

  17. @snic: I can confirm that the Barclay arrival plus’s chip and pin works in unattended train kiosks. I just used mine last week in Amsterdam and Utrecht to buy train tickets. The only place they won’t work is the occasional shops that only take maestro cards.

  18. A few notes.

    1. AMEX is just as good as MC abroad if not better. I highly recommend taking an AMEX with you.

    2. I don’t believe AMEX has bonus categories for abroad locations. So at best you’re earning 1 MR or 1 SPG.

    3. I’ve had Amex and MC charges that beat Visa by 2 percentage points. When abroad, you don’t want to use a Visa. Sometimes you’ll be okay. Sometimes you will get hosed. Never will you get ahead.

    4. The logic behind “why” MC is better isn’t as simple as Lucky describes. I had three simultaneous charges in Japan for the same amount. (Split a hotel bill on three cards) in the time it took the bill to post, the JPY got much stronger relative to USD. As a result, MC and Visa both charged me $834. And Amex charged me $818 (the rate on the transaction date). I saw no evidence that MC gave me a good rate.

    5. To the person who says why stress over a few percentage points… Not sure rewards credit cards are for you sadly. They only earn you a few percentage points on every transaction…

    6. At a kiosk in Norway recently, my Barclay Arrival card was the only card that would work. Saved my butt.

    7. My top card recommendations:

    -Citi Prestige or Premier
    -SPG Amex or Gold MR (if you have some other way of justifying the annual fee… Don’t pay $95 just for the privilege of no foreign exchange fees)
    -Barclay Arrival (downgraded from Plus, no annual fee, still earn 2% back on travel and dining abroad)
    -BofA travel rewards (if you have high net worth, the fact that it’s a Visa doesn’t matter when you’re earning rewards this quickly)

    Cards not to use abroad:
    -chase sapphire preferred or chase ink (unless you don’t have a Citi TY MasterCard, then the 2x might be a fine deal)

  19. Stvr: Why do you say not to use Chase Sapphire Preferred abroad? What is the connection between Bank of America Travel Rewards and net worth?

  20. @Stvr – If you reread my post then you will see I am talking about one-tenth to two-tenths of a percent (not a few percents) and with neither card type consistently being the winner.

    So no, I am not going to stress about which one has the better exchange rate when it is a total crap shoot on which one is actually better at that given moment. I am going to focus on category bonuses and spend requirements like business as usual until someone can definitively prove that there really is a benefit of using one over the other.

    Rewards credits cards are sadly not for me? I’ve been in this game a very long time. I’m not going let my multiple millions of miles and points expire and stop flying International F/J while staying in 5-star hotels across the world because out of every $1,000 I spend abroad it may or may not have cost me an extra dollar. Seriously!

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