Just because your card has “No Foreign Transaction Fees” doesn’t mean you won’t be charged any premium for using it abroad.

“No Foreign Transaction Fees” is a perk commonly included in a credit card’s benefits to attract more customers in an increasingly globalized world. But there are typically two ways in which payment processors (i.e. Visa, MasterCard, American Express) make money off of foreign purchases, and “foreign transaction fees” is just one of them.

Currency conversion fees are another way, i.e. using worse than market price exchange rate. There was a large class action lawsuit in 2006 against Visa, MasterCard and Diners Club that accused the companies, among other things, of non-transparency with their exchange rates. As a result,  you can now see all their exchange rates online. They use ambiguous language however when defining how those exchange rates are set, leaving room for the exchange rates to differ from each other.

MasterCard and Visa’s Currency Conversion Tools

I am not aware of a site where you can look up American Express’ exchange rates, so for comparison purposes I will just be looking at MasterCard and Visa’s currency conversion tools.

MasterCard Currency Conversion Tool

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Visa Exchange Rates

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If we zoom in on the text to check out how the two companies define how they set their exchange rates, they give some idea, but are non-committal using wording such as “may”, “typically”, “generally”, etc.

Visa:Screen Shot 2016-05-13 at 1.32.23 PM

When you search for a conversion with Visa’s tool, the following is stated at the bottom of the page, which somewhat further clarifies how an exchange rate is set for a purchase with the words “single rate per day”:Screen Shot 2016-05-13 at 1.39.19 PMMasterCard:

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MasterCard gives themselves even more wiggle room– they don’t claim to pick a single rate per day like Visa.

It’s hard to say why these exchange rates would differ from each other as there could be a myriad of factors influencing them, but people are reporting that they sometimes do. Like MileValue reader ProfP, who shared an experience of his where the difference in putting a hotel charge on a Visa (his Chase Sapphire Preferred) versus an American Express was a $100:

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What about American Express?

As mentioned before, I do not believe there is a currency conversion calculator where American Express publishes its daily exchange rates online for it’s US customers. There might be for customers in the UK.

There are less data points for transactions using American Express cards abroad as they aren’t as commonly accepted as MasterCard or Visa. But from what I can tell scanning this Flyertalk thread, the exchange rate America Express uses tends to fall in between Visa and MasterCard’s, with Visa lagging behind as the worst and MasterCard coming out on top (sometimes). If trying to choose between using a MasterCard and an American Express abroad, the difference is most likely minute enough that you should pick whichever card earns rewards that are more valuable to you, like this Flyertalker suggests.

Comparison of Exchange Rates for May 13

I looked up the published exchanged rates for MasterCard and Visa with the MasterCard Currency Conversion Tool and the Visa Exchange Rates calculator for May 13, 2016:

  • MasterCard: 1 USD =0.880592 Euro
  • Visa: 1 USD = 0.874519 Euro
  • MasterCard was 0.7% better for euro transactions on Friday
  • MasterCard: 1 USD = 6.524500 Chinese Yuan
  • Visa: 1 USD = 6.506265 Chinese Yuan
  • MasterCard was 0.3% better for yuan transactions on Friday
  • MasterCard: 1 USD = 1.378550 Australian Dollars
  • Visa: 1 USD = 1.354231 Australian Dollars
  • MasterCard was 1.8% better for Aussie dollar transactions on Friday

As you can see, MasterCard’s rates are better than Visas in every example.

One Theory of Why Visa’s Exchange Rate is Worse

One difference you can see by looking closely at the wording on each of their currency conversion pages is that Visa designates that they base the exchange off of one single rate per day. MasterCard makes no such designation, as I mentioned above.

Some people think this is the cause of the loss on exchange using Visa– perhaps Visa builds a cushion into their exchange rate as risk protection. View from the Wing recently wrote about the differences in foreign currency conversions. The following is a screenshot of comment from that post:

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But as far as I know this is just a theory. The best we can do is compare the data points we have and make educated decisions from others and our own experimenting.

Bottom Line

Even if your card has no foreign transaction fees, you might be getting ripped off on the currency conversion. MasterCard consistently beat Visa’s conversion rate by between 0.2% to 1.7% on the four currencies I checked.

You can use a no foreign transaction fees MasterCard like the Citi Prestige® Card , Arrival Plus, or Capital One Quicksilver card abroad to save a little money versus a Visa like the Sapphire Preferred.

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