TRAVELERS MAY spend time shopping for the most favorable airfare to Mexico or the best deal on a cozy B&B in the English countryside. But there's one expense they may overlook: their credit card.
Many big banks issuing cards tack a fee onto foreign transactions, usually 2 percent of the amount charged. That's on top of a 1 percent fee by Visa and MasterCard to handle the foreign currency exchange.
It can add up.
"It's not uncommon for a couple to go overseas and spend $5,000 to $10,000," said Robert McKinley, chief executive officer of CardWeb.com, an online publisher of card information based in Frederick. That would mean $100 to $200 in fees to the bank alone, worth at least another day at that cozy B&B.
Travelers expect to pay a fee for currency conversion, but they may not realize how much they are paying when using their cards, experts said. The fees generally are lumped in with the price of the merchandise or service purchased instead of being listed separately on the billing statement.
That could change.
A state court in California ruled last month that the foreign exchange fee charged by Visa and MasterCard since the mid-1980s was legal but not properly disclosed. The companies were ordered to refund the fee going back to 1996, with some estimates putting the total refund at more than $800 million.
Visa and MasterCard say the fee is disclosed in the cardholder agreement sent by banks to new card customers. The two card companies have until May 13 to submit a restitution plan. Both said they would appeal.
No matter the outcome, some industry experts say they expect the case will result in greater disclosure of fees. That would not only make consumers more aware of costs, but also make it easier for them to shop for the best deal in plastic, consumer advocates said.
In the meantime, if you're traveling abroad, what's the best payment method to use?
Credit cards remain the preferred choice because the exchange rate negotiated by Visa and MasterCard is much better than what consumers can get on their own, experts said. And cards' fees are still lower than those charged by currency conversion kiosks, particularly those at U.S. airports, consumer advocates said.
Cards offer other benefits, too. They're more convenient, safer than carrying a load of cash and permit consumers to dispute transactions, say, if the merchandise they buy turns out to be shoddy or was never sent to them as promised.
"You have recourse with a credit card. You have no recourse with cash," said David Robertson, publisher of The Nilson Report, a newsletter on payment systems.
But choosing the right plastic and using it smartly can save you money.
One of the first steps is to find out if your bank or other card issuer adds its own fee on foreign transactions. This fee has been cropping up in the past couple of years. Some consumer advocates say banks do nothing to earn this money.
McKinley said card issuers say that the fee is justified because the majority of their fraud cases come from international transactions.
"Their argument is somewhat valid," McKinley said, but he added the charge is also part of the "fee frenzy" in recent years as card issuers look for new ways to boost profits.
While most of the biggest card issuers charge the fee, consumers can shop around to find a card that doesn't. Among the larger players, MBNA and Capital One don't charge the fee.
Cards issued by a credit union or a small community bank likely won't carry the fee either, McKinley said. Smaller issuers, though, may not have large credit limits, so some travelers may want to take more than one card on which to spread the cost of the trip, he said.
To obtain money for taxis or small purchases, travelers should avoid using a credit card for cash advances. The interest rate on cash advances is usually higher than on normal purchases, interest starts accruing immediately, plus a cash advance fee can be as high as 5 percent, McKinley said.
The far better option is a debit card or traveler's checks, experts said. With a debit card, travelers may be charged a flat fee to use an ATM machine, and should avoid taking out lots of small sums and racking up fees, experts said.
Also, before using your plastic out of the country, let the card issuer know.
"Call your credit card companies and let them know you are traveling abroad and what countries," advised Robertson. That way, if you have only used the card in the United States, your card issuers won't suspect fraud and block access to credit if you suddenly purchase jewelry in the south of France, he said.
To suggest a topic, contact Eileen Ambrose at 410-332-6984 or by e-mail at eileen.ambrose @baltsun.com.