By Kelli B. Grant
Americans traveling to Europe have been steadily getting less for their dollar since last June, but there’s a surprising way to get more bang for your buck: pay by credit card.
A new study from CardHub.com tracked exchange rates and fees for different methods, including paying with a credit card, exchanging cash at a U.S. bank before your trip and doing so at exchange chain Travelex, which has ATMs and locations at airports, ports and stores. Credit cards came out way ahead of the competition.
Despite their reputation for high foreign transaction fees, credit cards were still an average 7.9% cheaper than bank exchanges and 14.7% cheaper than Travelex. “I was personally shocked at the difference,” says Odysseas Papadimitrious, the founder of CardHub.com. “If you took the worst credit card in terms of foreign exchange fees and used that instead of getting money from a major bank, or worse, from the airport, you would be saving a lot of money.”
A spokeswoman from Travelex says the study is somewhat misleading, because the company’s rates and fees vary depending on how much you exchange, and where the purchase is made. “We all know airports are a little more expensive,” she says. The $9.99 transaction fee is waived for consumers exchanging more than $500. Consumers ordering currency online for home delivery don’t pay that fee, either, and also get access to rates lower than those at bricks-and-mortar branches — a difference that makes their premium over credit cards closer to that of banks.
Even if credit cards have the better rates, it’s a smart idea for consumers to travel with some cash for small purchases and places where you can’t pay by credit, says Ed Perkins, an editor for SmarterTravel.com. Banks abroad have largely switched to so-called chip-and-PIN cards, which are processed differently than U.S. cards with a magnetic swipe. Although most merchants still accept both, you might find it’s chip-and-PIN only at some unmanned ticket kiosks and gas pumps. “Plus, it’s not like you’re going to use your credit or debit card to buy a newspaper in the morning,” he says. “You need some cash.”
To get that cash, Perkins recommends using your debit card at an ATM in your destination country. Fees and rates are set by your home bank, and are typically low. But for those who want cash in hand before traveling, shop around. Bank rates and fees vary, and exchange services are largely available to anyone who walks in — not just accountholders, Papadimitrious says. In CardHub’s study, Northern Trust had the best rate and no fee, which made exchanging $300 just 4% more expensive than using a credit card. U.S. Bank had the worst rate and a $9.99 fee, making it 10.6% more expensive than paying with plastic. (The bank did not respond to requests for comment.)
When picking a credit card for bigger purchases, look primarily at their fees. Visa and MasterCard set the exchange rates for cards that use their network and let the issuing banks set their own fees for foreign transactions, which can add up to 3%, Papadimitrious says. Capital One doesn’t charge a fee on any of its cards, and select high-level cards from other issuers also waive them, including Chase Sapphire, Citi Thank You Premiere and the Platinum Card from American Express. “As your credit gets better, your choices increase,” he says.
To get the best rates, don’t ask foreign merchants to charge you in U.S. dollars, even when you’re using the card. “The merchant charges you their exchange rate, which is usually an unfavorable one,” Papadimitrious says. And if you want the charge to go through at all, remember to notify your issuer about your trip in advance. Otherwise, they are likely to flag a sudden charge abroad as fraudulent and freeze your card.