mahasamatman

Which I do on both counts.

Guava

There is now way to avoid it, period, even if you use cash. There will always be a spread of some sort when you do a FX conversion. Capital One may not add an extra FX surcharge on top of what Visa or MC Int'l charge for FX, which is typically around 1% but since November 2006, Capital One no longer absorbes that charge for its CC customers.

I will elaborate on your fee free debit/ATM card in a following post.

Again, not true. The answer is it depends on which cards and which issuers. When I charged my USD based expenses in Maldives, I was never charged such fee that you talked about and that was only last year.

Guava

FYI, you still pay the 1% Visa/Master Card Int'l conversion charge, no exceptions for Capital One cards. What Citi and some others have done is they add another 2% on top of this, making it 3%.

mahasamatman

You are wrong. If you do it right (i.e., have the right banks), taking cash out of an ATM has no fees and the exchange fee is as close to the interbank rate as an individual will ever get.

Guava

You are making a critical omission in your logic here - time value of money. When you pay cash, this is immediately deducted from your savings account thus that money no longer earns interest. Despite the current interest levels, there is no shortage of credit union checking or saving accounts in the U.S. that pays 5~6% on your deposit, usually up to a reasonable limit. So your opportunity cost is not small considering charges to a credit card is really a short-term interest free loan from your CC company to you. Depending on when the charge hits, your interest free loan can be as long as 2 months for some credit cards and at a minimum, roughly 1 month.

Assuming you spend $5,000 a year on foreign transactions and on average time between charges posted and charged paid = 40 days and you have a deposit savings account of 5% at a U.S. credit union, if you do the calculations, you'll figure out that you end up getting back 0.55% on the transaction vs. paying cash.

When you use a debit/ATM card that would reimburse any foreign ATM withdraw fee, even though your card issuer may not charge any fees for such withdraw but the same FX conversion fee levied by Visa or Master Card Int'l still applies. There is no way around this. A few years ago, some institutions like Capital One was absorbing those charges as a way to attract customers but it has since been discontinued. So if you want to use cash to pay for your foreign travel expenses, first of all, I hope you never run into a theives or robbers. Cash can be dangerous. Then as you withdraw money at a foreign ATM, you will get the wholesale FX rate + a spread. That spread is sometimes itemized, depending on whose your card issuer and in other cases, it was simply add to your conversion rate. In any case, FX conversions always carry a spread - even corportations which buy in blocks of billions pay the spread, what makes you think retail customers can avoid such surcharge? So the rule of thumb is whenever you have a FX transaction, the 1% conversion charge above the wholesale interbank rate is the best you can do.

Ignoring any rewards or returns you get from your CC, using a CC vs. using cash saves you roughly 0.55% on every transaction based on the stated assumptions above.

Guava

O.K., prove it to me then. I am more than happy to be wrong in this case.

I have such a card, but the Int'l conversion fee still applies and itemized even though my credit union doesn't charge me any other fees. Care to tell me which banks/credit unions you have that still absorb the FX conversion fee when you withdraw money from a foreign ATM?

mahasamatman

Since I'm not going to send you my bank statement, you're going to have to take my word for it.

1. Citibank, if you use a Citibak ATM (available in many places)
2. First Internet Bank of Indiana. They will rebate up to $6/month in ATM fees, including any and all forex fees.

Using a combination of these, I haven't paid any surcharges or fees in years.

Not critical at all - I tend to ignore things that amout to no more than mere pennies. Compared to the 3% credit card surcharge, this is a triviality.

O.K., prove it to me then.

Guava

What I meant is that you provide the names of your banks/CU that you did below:


1. The Citibank coverage is far from universal, nor is it convenient. For example, Citibank has no ATM in Canada and Canada is the largest foreign destination for Americans. Your solution #1 doesn't seem convincing at all.

2. First Internet Bank of Indiana - I will need to examine your claim since I am not familiar with this bank and see what I can find out from their disclosures. FYI, my CU reimburses all ATM fees and there is no $ limit per month either. However, they also itemize all fees, those charged by domestic ATMs and those charged by Visa Int'l specifically for example. What I suspect where you erred is that this bank simply adds a spread to the wholesale bank rate without itemizing the charge - that's how most banks work, including Citi and all. In any case, this information will show up on their T&C disclosures so I promise to look into this get back to you.

And what makes you think others are necessarily ALL paying a 3% credit card surcharge when using a CC? FYI, I have a card, which earns 5.5 miles per USD spent on foreign transactions. The FX fee, all-in, is 2%. Of that 2%, 1% is charged by Visa Int'l. Even though I am paying 1% more than what I would on say on a Capital One CC, by pretty much all measures on FT, earning 5.5 miles in the process far outweights the cost of that extra 1% in cost (btw, the 5.5 miles here is one of those SPG 1:1 airline, so you could say this is equivalent to 4.4 SPG points ). Don't ask me which card it is, it's not available to you. Only select close friends of mine on FT know about this so if you need references, I am happy to provide and you don't have to take my words for it. In any case, an average US person who uses a Charles Schwab CC, which gets: 2% back in cash deposited to your savings account + 0.55% in interest savings - 1% in Visa/MC Int'l vs. your cash method will end up beating you by 1.55% of savings no matter how you slice it. That's assuming your global ATM withdraw is indeed totally cost free, which remains to be seen. Otherwise, that number will go up by 1% to 2.55%. 2.55% on say $30,000 of foreign expenses over the years don't seem to be pennies to me at all. Charles Schwab, btw, is the other CC issuer which has no FX surcharge, FYI

Way too easy, and this is only one of them:

http://www.midwestreward.com/

I was being conservative in my assumption earlier. I now give you a 5.11% real example here, but there are those who pay 6% and above if you look hard enough.

Flying Lawyer

There are several of cards with free ATM use and interbank conversion rate on this wonderful globe. Comdirect and DKB are two German examples.

mahasamatman

First of all, you need to do more research. Yes, their web site only lists Toronto, but Google is great for finding others in most majnor Canadian cities. Second, it makes no difference to me how any Americans go where. The ATMs exist where we go, so that's all that matters.

And where I suspect you erred is in treating me like a moron. But this will be my last post in this thread, as my original question was asked and answered, and this is waaaaay off-topic. Feel free to espouse your "financial expertise" in peace.

Three examples from last year (interbank rate from oanda.com):
1,000 HKD = $129.04 (interbank rate 0.1290 - $0.04 difference - 0.03% - in bank's favor)
150,000 KRW = $102.73 (interbank rate 0.00068440 - $0.07 difference - 0.07% - in banks favor)
15,000 JPY = $157.56 (interbank rate 157.56 - $0.04 difference - 0.03% - in my favor)

Those differences are in the noise.

SanDiego1K

And with that, I am closing the thread.

SanDiego1K
Starwood Moderator