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
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:
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”:
MasterCard:
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:
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 = 14.202500 Argentine Pesos
- Visa: 1 USD = 14.168721 Argentine Pesos
- Mastercard was 0.2% better for Argentine peso transactions on Friday (changing $100 bills would have been another 0.2% better)
- 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:
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.
Editorial Disclaimer: The editorial content is not provided or commissioned by the credit card issuers. Opinions expressed here are author’s alone, not those of the credit card issuers, and have not been reviewed, approved or otherwise endorsed by the credit card issuers.
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Scott–I thought the Freedom Unlimited also charged a 3% foreign transaction fee?
True, edited. My apologies.
I wasn’t aware of this difference, so definitely I’ll consider MasterCard over Visa, except if it’s a category bonus for which I only have a Visa card to use.
many times category bonuses are US only (supermarkets, restaurants, etc) so check with your issuer.
Scott – Thanks for the conversion tool and all your other informative posts. I did a review of my recent Dubrovnik and Paris expenses on a transaction date of May 2nd and it looks like my Kuna and Euro transactions received a better conversion rate using Visas, specifically my CSP, rather than MasterCards. The difference was 0.4% better on the Kuna and 1.75% better on the Euro. For May 2nd:
1 USD: 6.5282 Kuna : 0.867152 Euro for the MasterCard
1 USD: 6.5552 Kuna : 0.882291 Euro with the Visa, CSP
I enjoy reading your blog posts. First time commenter. My award tickets from DCA-MIA-LHR;LGW-DBV (uuugh) and then home, CDG-DCA, were made possible by coming across MileValue.com last summer. Booked the flights 9mons out for shoulder season April/May ’16 and the weather was absolutely beautiful. Effectively, the redemption cost me 72,000 AA miles for two off-peak econ tickets. The lady and I were “Upgraded” to MCE on all legs for no cost, stayed at the Hilton Imperial in Dubrovnik (Some points from MS’ing when the two birds were alive and HH Reserve certificates) and the Intercontinental Le Grand in Paris for dirt cheap (IHG Accelerate and Priceless Surprises Promotions). The retail cost was $20k+. Achieved for under $800. Thank you and keep up the good work. Is it even work? 😉
Great trip! Thanks for sharing the data point that MasterCard is not always better than Visa, and thanks for your success story.
As you probably know, the dates you flew are no longer in AA’s off peak window, but they are still in the off peak window of Alaska/Etihad miles to fly AA ==> https://milevalu.wpengine.com/you-can-still-book-on-old-american-airlines-chart-with-alaska-or-etihad-miles/
Recently with a small group of very experienced travelers in Indonesia I was surprised to find them using American currency to get local currency. I have always used my Schwab Visa debit card so I didn’t need to be loaded with $100 bills. Checking the differences (Schwab website vs. local exchange rate postings) when it was possible, I was still convinced my choice was the best. Except for Argentina, do you have any other comparisons of cards vs. cash?
Scott, Very good article. Please make another post about getting actual cash in these foreign countries. What is the best practice as many vendors either in Europe or SA will only take cash.
ATM’s offer these rates depending on whether they are Visa or MasterCard. Get a card with no ATM fees worldwide, and get cash from ATMs is the best idea almost everywhere: https://milevalu.wpengine.com/how-i-pay-zero-atm-fees-worldwide/
Excellent, useful post. I will definitely keep this in mind for future travel.
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http://www.moneysavingexpert.com/news/cards/2015/05/mastercard-vs-visa-for-using-abroad-which-wins
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Interesting article. Unfortunately 2/3 of my current cards are VISAs. That said, “Don’t Leave Home Without It” now means packing Barclays Aviator and Arrival+ MCs on our international trips.
Was there a change recently that made Visa worse? A few years ago I priced my Amex, Capital One Visa and Fidelity Visa transactions and found the FX rates to be in line with XE.com and no meaningful difference between the two. I did not have a MasterCard without FTFs (are you listening Diners Club?!?) and at the time Discover still had FTF’s (but not any more).
Tulum Mexico, April 7:
Visa – 17.932 exchange USD
ATM cash WD using Charles Schwabb card w/ no ATM fees – 17.615 exchange USD
Tulum Mexico, April 9:
Visa – 17.842 exchange USD
MC – 17.832 exchange USD
ATM cash WD using Charles Schwabb card w/ no ATM fees – 17.598 exchange USD
Clearly using a CC gives a much better rate than cash, even with no ATM fees, with Visa edging out MC. I only use cash when absolutely necessary.
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