Credit Cards with No Foreign Exchange Fees

Discussion in 'Other Credit Card Programs' started by MX, Aug 23, 2012.  |  Print Topic

  1. MX

    MX Gold Member

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    I was trying to decide which card was best to use overseas, and started testing the currency conversion with my CITI Thank-You Premier VISA. I made a charge in EUR on Aug.18, and waited for it to post. Indeed, there was no separate exchange fee. However, CITI applied the exchange rate of 1.2489. The official market exchange rate on Aug.18 was 1.2334. Since that date was on a weekend, I also looked up the highest rate during Aug. 18-20 --> it was still about 1.236.

    Just a few weeks ago, I used my Citi ATM card with no foreign exchange fees overseas. In that case, the conversion was at the exact market rate. So now I'm puzzled why the VISA CC rate is 1.26% above the market. I inquired with a Citi CS rep, and he did not know the answer. I checked with VISA International -- they charge a fee for customer service, and advised that I would be better off going back to Citi with that question.

    So is there a reasonable explanation for the rate discrepancy or is this a hidden fee? Has anyone checked the rates charged by MasterCard?
     
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  2. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    Is it Visa/MC that sets the rate or the issuing bank (Citi) in this case?

    I was thinking of running a similar test -- charge an identical small amount on various credit cards on the same day and look at the results. Maybe on my next trip -- tomorrow.
     
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  3. MX

    MX Gold Member

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    Great idea! I think Visa/MC provide the currency conversion for cc transactions. But if your test shows differences between the banks, we might have to rethink that. Enjoy your trip too! :)
     
  4. sleepyintheair
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    sleepyintheair Silver Member

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    I'd be very interested in data on this point; the cards I use outside the US (Chase sapphire pref & Amex plat) both have no official foreign exchange fees, but I've often wondered if there is a hidden fee in the conversion rates. I'm actually not sure if it's the transaction date or the posting date that is used to calculate the rate, but based on trans dates an informal comparison suggests I'm getting the same rate (perhaps a slight edge, less than a tenth of a percent to the chase card) on both at roughly the oanda interbank rate+~0.25% IIRC. Anyway, curious about how other cards compare.

    Edit: mistyped above, swapped a zero for a two.
     
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  5. jbcarioca
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    jbcarioca Gold Member

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    There are a number of threads and other discussions about this. The practices do differ slightly, but normally the issuing bank processes through a FX net settlement process sometimes by MC or V, which in turn have an agent bank taht actually handles the transaction. The mechanics differ depending on the currency and the issuing bank. Basically with Citi, Chase, Bank of America, Discover/Diners Club and American Express the rates you'll get on a FX-fee-free card will approximate the typical large commercial transactions rates, usually a few pips (typically the 0.0001 [called pip] but can be higher with some low unit value currencies). There is no way to compare quoted or published FX rates exactly with the ones we get because of timing, for the most part. In most major currencies the fluctuations are low enough that you'll average out quite close. Technically the banks are making money, usually a few pips. When the amounts are large a few pips is lots of money.

    That is a gross simplification. There are textbooks on this arcane subject. I know enough about it to be dangerous. Many years ago I knew precisely how it worked in a number of countries, but I do not know the settlement details currently.
     
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  6. estnet
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    estnet Gold Member

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    Okay - I know MUCH less, but I have found that the Schwab visa usually is just about the interbank rate (plus a few
    "pips" - hey I learned a new word) buy NOT with an additional 2%.
     
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  7. jbcarioca
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    jbcarioca Gold Member

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    That is at it should be. I have compared actual with typical market rates a number fo times on several issuers cards, including those of all the ones mentioned above and a couple of others. At the time I had direct access to FX trades fro my then client so we could match timing also. There was no significant variance with typical large commercial trades in that study although there was rarely a precise match. That was pretty much what I expected to find.

    Frankly I'd worry more about other terms like points and cash back, rather than this. Also the way late fees and interest are charged is NOT standard. Citi, for example will charge interest and late fees even if you pay on the due date via their own site, but they post it late. That can cost a large amount. Others do that too. read the payment allocation hierarchy in the fine, fine print of your cardholder agreement to find out more. Those disclosures seem not to be written for ease of understanding.
     
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  8. Jenny & Curt
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    Jenny & Curt Gold Member

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    AND, avoiding Dynamic Currency Conversion abroad can save you more than even just a few "pips."
     
  9. estnet
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    estnet Gold Member

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    For sure, this is one of the biggest "legal" scams going:mad:
     
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  10. MX

    MX Gold Member

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    I'm impressed with your experience in large commercial FX trades. Now can we get back to my small retail transaction. ;) The discrepancy was 155 "pips", certainly not just a few pips. FX rates were not particularly volatile on Aug.18-20. Also, I don't feel that banks would ever claim that the conversion process is opaque and mysterious, as you're making it out to be. In fact, everything is spelled out in credit card T&C.
    So how did you get from your commercial trading experience years ago to the conclusion that one should not scrutinize bank conversion charges? They might not be the largest fees, but they are important enough to all the bloggers who sing praise to NO surcharge cards. ;)
     
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  11. MX

    MX Gold Member

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    I believe the conversion rates used must be from the close of business on the date, that's designated as "posting date" on bank statements. It should not be confused with the date when your transaction is posted online, which may be later. Also, when you look up activity online on a Chase site (and possibly others), they only use "transaction date", which is the same as "posting date" on statements. Most banks only report one (official) date for each transaction, so we don't need to worry much about the semantics.
     
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  12. traveltoomuch

    traveltoomuch Silver Member

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    Some more data for you:

    Fidelity FIA Amex. Transaction in Euros on 23 Aug, posted on 24 Aug at US$1.2611/EUR. Oanda reports 1.2470 on 23 Aug, 1.2550 on 24 Aug.

    Chase Sapphire Preferred. Transaction in CDN on 4 Aug, posted on 9 Aug at $1.00575/CDN. Oanda reports .9966 on 4 aug, 1.0034 on 9 Aug.

    Chase Sapphire Preferred. Transaction in CDN on 3 Aug, posted on 5 Aug at $1.0021/CDN. Oanda reports .9948 on 3 Aug, .9983 on 5 Aug.

    Chase Sapphire Preferred. Transaction in CDN on 2 Aug, posted on 3 Aug at $.9991/CDN. Oanda reports .9975 on 2 Aug, .9948 on 3 Aug.

    Looks like a 20-60 pip difference on both cards, based on posting date.
     
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  13. jbcarioca
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    jbcarioca Gold Member

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    The credit card T&C actually spell out nothing material if you read them carefully. 155 pips could be material were you to actually match timing, which is not really possible. Conversion rates are NOT COB rates normally, which are often quite divergent from mid-rates at any other time of day, but not always, of course.

    I do not advocate ignoring FX or Foreign Transaction charges, as they are wont to say these days. DCC is a horrible scam and can almost always be beat, even in China. A FX fee addon is a ripoff too. Apart from those two though I think there are other fees taht are often better places to spend attention. For example, Citi and others adding a late fee when you pay on due date and they post that night. Then there are the common charges for Over the Limit when they've approved the charge. Then there are the interst calculations and the numerous Payment Hierarchy processes, taht cost money but typically are not in the T&C's. Most issuers cannot affect FX fees without tacking on an extra charge because they are not involved in the actual FX execution, clearance and settlement process. American Express clearly can do so itself. Anyway, from a consumer perspective these issues are quite hard to fight, while the direct fees and charges are easy to fight. That is my logic.



    With the exception of the single Amex charge (AMEX has their own internal system for their major trading currencies. It does seem that they make money) the others are well within momentary fluctuations intraday. If you've ever done currency trading with Oanda (my favorite place for retail transactions BTW) you'll remember how hard it is to actually pay a precise number within the one minute of quote duration there. That said, the Loonie and the US$ often trade within a very narrow band.

    Finally, I do find it very interesting to see these comparisons, even more so were there to be ones from more exotic currencies than Euros and Loonies. Between the Brazilian Real and US$ you'll see some large gaps, as you will with Rubles, Renminbi and almost all minor currencies. I do not know what any of us could do about those charges but it is still very nice to know.
     
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  14. MX

    MX Gold Member

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    So I take it now that FX streads still apply to most transactions, and they are in effect currency conversion charges. I don't suggest we need to do anything about the charges themselves. A competitive market will sort it all out. But we can't have deception in an open market. If there must be a conversion charge, I want to be aware of it prior to making transactions. If the exact amount is not specified, there should also be a cap (e.g. 1-2% above the commercial exchange rates -- kind of similar to market-based mortgages).
     
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  15. jbcarioca
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    jbcarioca Gold Member

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    From a technical point of view these are not currency conversions charges to us. they are spreads between bid and ask rates, if you will, the normal differences between buy and sell. They are not markups in the classical sense, so they aren't disclosable. I have never seen or heard of such margins being more than 1/4%, and usually more like 1/10% or less.

    FX quotes are probably less accurate than is LIBOR, and we all now know how good taht is. Nobody supervises FX quotes and OANDA is probably as good as it gets.
    The ones shown just above by traveltoomuch quoting the OANDA rates (I suppose mid rates rather than bid or ask rates) are at their worst 1.1%, well within the margin of difference betwen daily trading ranges Euro/US$. For the last 24 hours, says Oanda, the fluctuation was about .7%. Because we do not know when his transaction actually settled we do not know for certain which day it was, but it was probably 24 August, when the range was about .5%.

    Selling 1.00000 EUR you get 1.25381 USD
    Buying 1.00000 EUR you pay 1.25394 USD
    Rate Details

    EUR/USD for the 24-hour period ending
    Friday, Aug 24, 2012 22:00 UTC

    Bid
    Sell 1 EUR

    Ask
    Buy 1 EUR
    MIN
    1.24811 1.24821
    AVG
    1.25381 1.25394
    MAX
    1.25689 1.25701
    These values represent the daily average of the Bid and Ask rates OANDA receives from many data sources.
    http://www.oanda.com/currency/converter/



     
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  16. MX

    MX Gold Member

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    I picked up some clues of the differences between MC and VISA from this Citibank Hungary disclosure (of all the places) -> http://www.citibank.com/hungary/homepage/arfolyamok3/cbluemaster.jsp#en
    Apparently, for MasterCard transactions the currency conversion is done by the bank. It's a transparent process, there's only one rate for any transaction day, and it's clearly posted.
    For VISA charges, any currency conversion is done by VISA. The process is not so transparent, and each transaction may have it's own conversion rate. By the way, the test charge that started this thread and had a 155 pip discrepancy was on a VISA!!! So for now I'm inclinded to think that the MasterCard conversion process may be more predictable and customer friendly.
     
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  17. jbcarioca
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    jbcarioca Gold Member

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    Oops, please not so fast.

    Citi disclosures often apply only to Citi, not to other issuers. However, in some countries Citi does all processing and owns rights for MC and Diners Club too. In a number of such countries, including several in eastern Europe, Citi disclosures for MC reflect their historical role which still continues. That does not necessarily apply in countries where they do not control the distribution.

    Both of these entities, MC and V, have different procedures for each currency. Some work more favorably in some currencies and less so in others. That is true for MC, V, AE and Discover. The ATM networks also vary, but those owned by the Card Organizations (once they were called Associations, but that is no longer true and never was for D and AE) usually, but not always, use the same process for both Card/Charge cards and Debit cards. The situation is further complicated because there are local franchise arrangements with separate owners for many countries, even for American Express.
     
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  18. MX

    MX Gold Member

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    Thanks, jb. So I take it from your comment that the observed V/MC differences may not exist in all countries.
    What's your opinion specifically for the disclosure on HUF conversions? Do you agree with the interpretation that the MC process comes out as more transparent and customer friendly than V?
     
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  19. jbcarioca
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    jbcarioca Gold Member

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    Generally I think the disclosures are very poor and often misleading. Generally, where consumer disclosures for banks are strict, and where the processor is regulated as a bank the disclosures seem to be better, as in your Hungary case.
    There is lots of room to 'manage' the process and still have consumers better off than any other alternatives they have, so I don't expect any major improvements unless there are more lawsuits such as the one that forced MC, V etc to stop adding and undisclosed 1% ad valoram fee.

    I have been wrong before, although I have usually be in little doubt.:rolleyes:
     
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  20. Jenny & Curt
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    Jenny & Curt Gold Member

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    One strange data point: A Starwood hotel in Belgium had a MasterCard promo that didn't have a minimum spend, so charged my 5 Euro balance. (Room rate was prepaid.) Hotel accidentally charged to my Visa on file, so they had to credit and then bill to my MasterCard. They did not cancel the first charge, but credited it, which is important. VISA was Chase Sapphire, with "no" conversion fee; MasterCard does have fee. So, 5 EURO charge on visa was $6.59. Credit back to same card at same time was $6.28. Charge to MasterCard was $6.29. All transactions within 10 minutes. In checking other Chase Sapphire transactions that week, the rate above seems an outlier, but I am not one who enjoys uncertainty in financial transactions, so..
     
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  21. Slow_Mustang
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    Slow_Mustang Silver Member

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    Just to add a data point, Citi Gold members do not pay any currency conversion fees or foreign transaction fees for ATM use in foreign counties. But one has to watch the service fee that some foreign banks charge on such transactions. When an ATM withdrawal request is made, they do let you know if there is going to be a service charge by the foreign bank and at that time you have the option to cancel the transaction and look for an ATM machine from some other bank and hope they have better sense.
     
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  22. MX

    MX Gold Member

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    Just to make sure I got that right: the same EUR charge converted on a "no fee" Visa came up almost 5% higher than on a "with fee" MC?
     
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  23. Jenny & Curt
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    Jenny & Curt Gold Member

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    Yes, and the credit to the VISA was back to almost the same as the MC. The MC in question was from USAA, which I think has a lower advertised fee than some, but... So, today I am in London and will buy a transport ticket with each and report back.
     
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  24. MX

    MX Gold Member

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    Thanks, please do. Perhaps also note transaction dates, so you can later check if there were any wild rate swings on those dates.
     
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  25. Jenny & Curt
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    Jenny & Curt Gold Member

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    Hoping my non-chip card will work....otherwise I will try to find a human to buy from.
     
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