This Thanksgiving, my wife and I will be heading to London, England, to visit good friends of ours who are working there. Given the recent economic unrest, it seems pretty foolish for us to try to play any games involving exchanging money so we’ll try to convert as little as possible directly, instead we’ll resort to using credit cards as much as possible so we orphan (leave in pounds sterling) as little cash as necessary.
When it comes to using credit cards abroad though, it’s gotten a little more complicated than your classic “foreign transaction fees.” It turns out that in addition to the issuers and banks charging you a fee, some merchants will add a “Dynamic Currency Conversion” fee on top of everything else. That can be as high as five percent!
International Card Use Fees

After a little research, here are the three fees as best as I can decipher them:

Card IssuerForeign Currency Conversion Fee (%)Issuer Fee (%)Dynamic Currency Conversion (%)Total Fee (%)American Express2%0%0%2%Bank of America1%2%0-5%3-8%Bank One1%2%0-5%3-8%Capital One1%-1%0%0%Chase1%2%0-5%3-8%Discover0%0%0%0%First USA1%0%0-5%1-6%MBNA1%2%0-5%3-8%Providian1%1%0-6%2-8%US Bank1%2%0-5%3-8%
  • Foreign Transaction Fee: The foreign transaction fee refers to the fee that is charged by the payment processor (Visa, Mastercard, etc.) to handle the foreign exchange.
  • Issuer Fee: The issuer fee refers to the fee that the bank charges to handle the transaction.
  • Dynamic Currency Conversion: That’s the fee charged by the merchant for the acceptance of your card. This fee often times covers the transaction fees levied by international payment processors.
Example Use Case

Let’s say we have and Bank of America credit card and we go buy something at a pub in London. When we pay our tab, there are potentially three fees levied on top of our bill for goods and services. First, Visa, the card issuer, will charge us a 1% fee for handling the transaction. Then, Bank of America will want a piece of the action and charge their own 2% fee. Finally, the pub, in trying to recoup its own costs, tacks on a dynamic currency conversion fee on top of everything of 5% (let’s just say). That means your bill started at $20 USD and suddenly became $20.80 after fees, or 8% more.
Best International Card: Discover or Capital One

The two best choices for international spending appears to be a Discover Card or a Capital One card. One interesting thing I’ve learned, again in doing research, is that Discover card, because it’s such a smaller network compared to Visa and Mastercard, simply isn’t widely accepted. It’s not as widely accepted here in the US either, so that’s not surprising.
To my knowledge, I’ve never had a Capital One card, so now’s as good a time as any to add one to the stable. The one that looks most appealing to me is their No Hassle Cash Rewards Credit Card - no annual fee, cash back (rather than points or miles), and they also have a 0% on purchases until October 2009. As an added bonus, you get 2% at gas stations and supermarkets. (The application process, including approval process, took about three minutes!)
If you’ve done a lot of international travel and have any recommendations, we’re all ears!
Big Ben here we come!
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