Are No Foreign Transaction Fee Cards a Scam?

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A reader wrote to me:

For credit cards, HSBC is by FAR the best for foreign purchases but not sure if it is because it is HSBC Premier rather then regular HSBC. HSBC Premier gives me the same exchange rate as what they get when exchanging money between other banks with no mark-up. It is crazy how much I save. I’ve found Chase to be the most expensive and American Express somewhere in between. The difference in exchange rates negates any benefit from earning miles etc even though all the cards say no foreign transaction fee.

Many American credit cards charge a 3% fee when the origin of the charge is foreign. This is frustrating, and swamps the value of the miles you earn usually since one mile is rarely worth three cents.

You’ll get hit with the fee even when the charge is in dollars, as I found out when I paid a 3% fee on the taxes charge on an Avios booking made at in dollars.

But there are several cards that advertise no charge for foreign transactions. The Sapphire Preferred, Ink Bold, and Ink Plus all mention the benefit in their marketing.

But there are two ways banks make money on foreign charges. The first is the fee they might charge. The second way banks make money on your foreign purchases is by converting the purchase into dollars at a bad rate for you. This is what the emailer suspected Chase was doing.

To test out how much of that was happening, I’ve made two purchases with my Ink Plus in New Zealand.

The first purchase was NZD 260 for a 440 foot bungee jump. The second was NZD 109 for a Milford Sound cruise. In both cases, those amounts were the exact amount charged to me since New Zealand follows the enlightened practice of including all taxes in quoted prices.

Both are showing as pending in my Chase account online.

Doing a little math, the conversion rate was 1 NZD to $0.8289. (I’ll be using “$” to denote US dollars and “NZD” for New Zealand dollars.)

How does this compare to the prevailing rate? The easiest way to check is to google “1 NZD to USD.”

Google says I would need to spend 84 cents to buy 1 NZD. Chase sold me 1 NZD for less than 83 cents! For whatever reason, Chase offered me a better deal than the prevailing rate.

Maybe you could see this more easily if we look at one $1 should buy me according to google and Chase.

Google: $1 = 1.19 NZD

Chase: $1 = 1.21 NZD

Chase is clearly giving me an incredible deal. Even more so when you compare it changing money on the street.

Street Rate

Banks throughout Auckland and Queenstown show their prices for buying and selling dollars. The one I saw today in Queenstown would sell NZD for $0.8815. This is about 4% worse than the prevailing market rate according to google. (Remember the fewer dollars we spend for 1 NZD, the better.)

If I had taken dollars to a New Zealand bank and changed them to NZD to book my tours, I would have needed 369 NZD total. That would have cost me $325.27 at the bank. Chase charged me only $305.86.


Today in Queenstown, New Zealand, I was way better off paying for tours with my Ink Plus than I would have been changing American dollars or using another card with a 3% foreign transaction fee.

I’ve made that conclusion very specific because I am very surprised by the results of my experiment. I expected Chase to offer me about the same rate than if I had changed at a bank.

Clearly my results were different than the emailer’s experiments of splitting foreign charges halfway between Chase and American Express cards. He found both to offer a bad rate with American Express offering a slightly better exchange rate.

I do think New Zealand’s banks and change houses offer bad rates for cash, implying about a 3% fee. I generally notice rich world countries offer way worse exchange rates than developing countries. For instance, in Arequipa, Peru there are dozens of change shops that have only a 1% spread between their dollar buy and sell prices, meaning they are only shading about half a percent on each side.


Today in New Zealand dollars, I got a better deal by charging to my Ink Plus than I would have gotten from an exchange house. Your exchange rate may not be as good when you use a credit card for a foreign transaction.

But I was very happy to see that a “no foreign exchange fee” card like the Ink Plus didn’t try to make up for that lack of a fee with a bad exchange rate. A reader’s email made me fear that “no foreign exchange fee” cards might be a scam, but in my experience they aren’t.

I got a great exchange rate and paid no foreign exchange fee.

25 Responses to Are No Foreign Transaction Fee Cards a Scam?

  1. I think Chase has to go by the actual current rates of exchange on that day. Where as Googles ration is probably not up to date. Its probably close but not exact.

  2. I think the way to go when traveling abroad is to use local currency that you withdraw from an ATM. You get the best conversation rate and you don’t have to worry about your credit card company burning you on the exchange rate and/or charging fees.

    • Both rates (credit card and ATM) are set by a bank, so I’m not sure why this would yield better results. Plus ATM fees from ATM owner and your bank.

  3. The e-mailer is perhaps not up to speed on exchange rates and how things work. Published market rates are for very large sums of money (definitely larger than your $300 purchase….).

    The rather large bank I work for was selling euros for $1.37 when the market was $1.31 before the new year. Knowing that ATMs charge a rate more similar to market rates, I get any necessary cash from foreign ATMs.

    Now lets compare your ATM cash rate to your Chase card purchase rate. It happens that while in France, I have cash withdrawals and purchases on the same day on two occassions. This is of course the real comparison, because we have to use cash vs. credit card, and this is the cheapest way to get cash.

    Cash at ATM: E100 on Jan 4 = $131.93
    Purchase for E100 on Jan 4 = 132.00
    Difference in favor of cash at 0.05%, five hundredths of one percent.

    Cash at ATM: E300 on Dec 31 = $397.77 (1=1.326)
    Purchase for E222 on Dec 31 = $293.10 (1=1.320)
    Difference in favor of credit card by 0.45% in this case.

    So unless you find a person on the street willing to give you the market rate of the moment for your sum of $100, the credit card is always worthwhile in a currency like the euro.

  4. those who make this claim that foreign transaction fee-free cards being not worth it are way off base, and lack experience, in my opinion.

    Chase’s non-FTF cards have always given me charges that were extremely close to the “official” exchange rate of the day, and to judge I rely on Yahoo Finance’s Currency Converter. At most, the Chase charge is usually 1-2 cents higher per dollar.

    The savings is significant compared to a card charging FTFs. Always.

  5. “New Zealand follows the enlightened practice of including all taxes in quoted prices.”

    I do not agree that this is “enlightened”. I understand the sentiment, for it is much simpler than the US system.

    However, the inclusion of taxes in stated prices is something that we’ve purposefully done in the US, since it keeps tax rates in check by making it conspicuous to all consumers what the additional cost the government imposes on commerce.

    I would wager that there is a direct correlation between “implicit/stealth” sales taxes (e.g. New Zealand) and higher tax rates.

  6. This is a great post. But everything you figured out was “after the fact”. Any ideas on how to decide what to use BEFORE you make a purchase? i.e. choose between cash and credit prior to making a purchase?

    • Hopefully this post will guide your next decision ex ante. From the comments and a milepoint thread brought to my attention, credit cards charge yesterday’s rate with about a .4% fee. That’s better than an ATM and changing money in most cases.

  7. Sorry: should read “exclusion” in second paragraph, not

  8. I’d be curious to see a side-by-side comparison of purchases made on the same day on no foreign transaction fee credit cards from various banks, similar to Dan’s comparison of cash vs credit. On a trip to South Africa, my Discover card gave much better exchange rates than my Chase card, but I didn’t use both credit cards on the same day, so it could have just been due to fluctuations in the exchange rate during my stay. But then in South Korea, I similarly found that my Chase card gave me a better exchange rate than the one on Google.

  9. ATM is the best way for cash, CC is the best for purchase for exchange rate.

    Also note that home country currency rates (where they are selling you their own currency) are better than when you are buying in your home country. i.e. you will get a better rate in NZ for NZD than you would if buying NZD in the US at a FOREX counter.

  10. Scott G- a couple of things to think about here: First of all, googles rate of 0.84 is horribly inaccurate- you should go on or something similar. For NZD/USD you should be thinking in 4 decimal places- 2dp just injects additional error into your experiment. Also, I’ve been through a similar exercise for many charges on Chase cards, and found that the best explanation of the rate used on any day is the rate for the previous business day (if you look at the one week chart on you’ll see that days trading range was 0.8218 to 0.8318), rather than the “live” updated rate. So a better comparison for how much spread Chase took might be the average rate for the previous day- I’ll approximate that by averaging the high and the low, and get 0.8268, so your rate of 0.8289 is more like 0.0021 (21″pips”) above the mid rate- or about 0.25% of notional. Not too bad, and I think its Visa that charges Chase the rate (and who gets the spread) but definitely wouldn’t describe the overall transaction as having “no currency charge”.

  11. @Drewbird- its hardly a stealth tax, as the GST (goods and services tax) is the same everywhere in NZ (not different in different places like the different sales taxes in different States in the US) and it is known to everyone that it is included… I think its better for NZ anyhow- it simply makes it easier to know how much money you need to get out of your pocket before you pay….

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  13. My favorite example was using my Chase BA and Chase Sapphire Preferred in Hong Kong, where the HKD is pegged to the USD on a very small sliding scale. I was visiting my cousin who works for HSBC and he knows the daily exchange rate to the tenth of a penny … he said the best HSBC (which has the ability to print HK Dollars) could do was HKD7.761 for $1 … Chase gave me HKD7.792 for $1, which it never hit anytime during my trip. My cousin was stunned!

  14. We just used our Saphire Pref’d in Buenos Aires to good results over the holiday break.

  15. The actual exchange rate is dictated by the purchase network (Visa, MC, Amex, etc) not the bank. If you use a Citi Visa with a 3% FT fee and a Chase Visa with a 0% FT, you will pay EXACTLY 3.00000% more with the Citi card.

  16. It’s worth revisiting this topic from time to time but my many overseas card purchases and ATM withdrawals indicate both non-fee cards and ATM withdrawals are usually so close to the market rate that the tiny difference is well worth the gained convenience and security.

    A few comments:

    Market rate: I don’t know about Google but I’ve used for years and it seems to track pretty well.

    ATM fees-There are ATM cards that are fee free. Charles Schwab has one that not only doesn’t charge a fee but reimburses any separately stated fee charged by the ATM owner, worldwide.

    Exchange differences can actually be just due to timing. A purchase overseas on a Friday night before a holiday weekend can take several days to hit a US credit card account and I have found that the rate is often fixed toward the end of that period.

    FT threads pop-up from time to time on this, often started and almost always joined by some who rail against the feeds charged in this area by banks. My experience is the opposite-pick well-priced cards and stay away from off-label ATMs (which I do stateside anyway) and both ATMs and CCs are a real travel enhancement on overseas trips.

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  19. You are misinformed about several things. please do some research before you post this misinformation to the public.

    point 1: your exchange from NZD to USD didn’t happen at Chase, it happened at Visa or MasterCard (whichever is the provider of your card). Thus it is not true that “Chase gave you a great exchange rate” — What happened is Visa/MC gave you a great exchange rate. You can look up the visa daily exchange rates online.

    point 2: google is giving you an average. visa gets a better exchange rate because of their massive volume. they pass some of this on to you, taking only a 1% spread.

    point 3: No Foreign Transaction Fee cards are not a scam — your title doesn’t match what your article is actually about.

    point 4: the “customer service conversion” at a bad rate is indeed some kind of a “scam” — but it has nothing to do with “no foreign transaction fee” cards. You will get prompted for this no matter what kind of card you are using. It depends more on the vendor. However, you can simply decline this “service” to use Visa’s far superior exchange rate.

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