About Credit Card Conversion Fees

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Credit card carrying consumers should be wary when using their cards in other countries. Banks and credit card companies often tack on credit card conversion fees (also known as foreign transaction fees) for purchases made in foreign countries. The bargain items you thought had you purchased abroad could be much more costly upon your return home.

Credit Card Conversion Fees

  • There are two fees that consumers need to be aware of when making purchases in a foreign country: the exchange rate and the currency conversion fee. Both of these fees can increase the actual amount you pay for an item.

  • Currency conversion fees are charged by banks and financial institutions to process a transaction where the price of a purchased item must be converted into a different currency for billing. If you live in the United States and purchase an item in London with your credit card, it will be initially entered in British pounds. When you receive your credit card statement, your credit card company will convert the British pounds into U.S. dollars. Your credit card may charge an additional fee to process this type of transaction. These fees can range from 1% to 3% of your total purchase.

  • Find out the conversion fees on your credit cards or you may be in for a big surprise when you get your credit card statement. Contact the customer service department on each credit card you carry by using the phone number located on the back of each card. Discuss the conversion fees with your credit card company before you travel. Since conversion fees vary between credit cards, use the card with the lowest fees to make purchases in other countries.

  • Another place where you could lose money is in the actual conversion of the currency. Ask your credit card company how they determine what exchange rate is used when they convert your purchase into dollars. Using the example from above, if an item cost 100 British pounds (BP) and the current BP/US dollar (USD) exchange rate is 1.625, the actual purchase price is $162.50 in USD. Your bank may not use the current exchange rate. Or they may use an exchange rate plus an added transaction fee. For example, if the bank decided to use a rate of 1.725 BP, you will be paying $172.50 for the item, or $10 more.

  • To understand the implication of these fees, look at the conversion fees and exchange fees together. Using the same example, the item purchased for 100 British pounds at 1.625 (BP/USD) would have cost $162.50 if you had paid in cash. When charging the item, assuming the bank uses an exchange rate of 1.725, you will pay $172.50. The conversion fee would be then be added. Assuming your bank charges a 3% conversion fee, the additional charge would be $5.175 (172.50 * .03%). Using this example, an item that could be purchased for $162.50 in cash, will cost $177.68 on your credit card bill when you return home.

Tips & Warnings

  • Call the phone number on the back of your credit card and ask if your card is accepted in the country where you will be traveling. Not all credit cards are accepted in every country. Credit card companies are always on the lookout for suspicious transactions. If they find your card is being frequently used in another country, they may freeze your credit line until they are able to contact you. To avoid credit line problems, contact your credit card company before you leave and inform them that you will be using the card in another country. Traditionally, Capital One does not charge conversion fees. This may be a card worth considering when you are traveling abroad. As fees are constantly changing, please check the current credit card policies before you apply for any new credit card.

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