On the 6th of December 2022, I posted my first article about how we approach paying for things when we are abroad. And then, on December 14th I quickly amended it with an update. Given that it requires yet another update I am just going to “rewrite” the entire post and share it here as a renewed piece.
I’m not really going to rewrite all of it, it will be more of a re-shuffling of the information and adding in the bits that I find to be newly relevant here in February of 2024.
Charge Card Usage
Fast forward to 2024: we now hardly ever use cash and most of our payments are made by tapping a phone on a credit card machine. What a change.
I barely spoke about charge cards at all in the original article. Since then, I have done a 180° turnabout in what I think about their usage – for a couple of reasons.
First, things have dramatically changed here in Spain from what we experienced before the pandemic. Before the pandemic, nobody, especially restaurants and other small businesses wanted any part of charge cards. We were paying cash for virtually everything except for purchases that we made online, like bus tickets and hotels.
So, the “nobody wanted to be paid with charge cards” era is officially over, making it much easier to flash the credit card than having to walk around with a lot of cash in your jeans. I am quite certain this was spurred on by the fear that Covid could be transferred by handling infected money bills. Yes, we do have to laugh now at some of the ways in which we imagined the disease was spreading.
Secondly, we can finally avoid getting hosed on exchange rates and foreign transactions when we pay with plastic. Credit cards are now available that cater to folks like us who travel a lot and who make a lot of foreign purchases.
No Foreign Fee Charge Cards
We became aware after our 2022 winter getaway that a new type of charge card was available. These were special travel-related cards, which eliminated the extra exchange rate and transaction fees that we were paying on our conventional charge cards. I will repeat my note from the December update here just to demonstrate how this great change began.
Here it is.
“ 2022 Update – Just after posting this piece, I came across an article/Ad at “moneysense.ca” that looked at a number of Canadian Credit card issuers who were offering “no foreign transaction fee” credit cards for international use. The article referenced, no fees, but what I noted was they didn’t mention whether that included extra currency exchange charges or just the special international usage fee. “
As it turned out, there were a couple of cards on offer that eliminated extra currency exchange charges as well. We decided to apply for the one that was ranked as being the best choice, the HSBC World Elite MasterCard.
I will not go into detail about the long-drawn-out experience that entailed, because it is no longer relevant. Essentially, HSBC had stopped issuing credit cards because of the impending takeover by RBC. We had to go into an HSBC branch and talk someone into approving us for the card.
We were hoping to take it to Ireland with us, but I am pretty sure the card arrived at the house the day after we left. But we have it here with us in Spain and have been using it for all our purchases. We have paid with cash only very intermittently. And when I check the online banking, it is doing exactly what it promised to do… Greatly reducing our exchange and transaction costs. We are very happy customers.
But that is all about to come to an end… Doh!
RBC has now officially taken over HSBC and the move has begun to switch people over to RBC banking and services… Including charge cards. Unfortunately for us, RBC does not offer a charge card that is the equivalent of the one we have from HSBC. So as the saying goes, we are officially out of luck!
I did confirm with the bank that we would be able to use this card until the end of our trip in the first week of April, so that is all good. But as soon as we get home, we will have to go through the process of searching out another travel card… Sheesh! Scotia Bank’s Passport Infinite Visa Card is currently the front-runner.
You might be thinking, “I would like to get one of those special travel-related cards, – they seem ideal”. They are ideal for us, but I don’t think they are necessarily ideal for everyone. They come with a substantial caveat.
The Caveat
First of all, you have to pay an annual fee to have one of these cards. For both the HSBC card and the Scotia Bank Passport there is an annual fee of $150. So, to break even you have to save at least $150 in exchange rate fees before it starts to pay to have one.
Secondly, there are levels of income you must have before you qualify for a card. The Passport Card requires you to have an individual annual income of at least $60,000, a household income of $100,000, or a minimum level of manageable assets.
So, these types of cards will not work for everyone. If you are primarily going on two-week international outings, it’s probably hard to justify paying for one of these guys.
That all said, if you are still using your conventional charge cards, then it is probably best to at the very least understand the extra cost involved in doing so, as I wrote about two years ago.
Using Conventional Cards
If you are more comfortable doing most of your financial transactions with credit cards that is your prerogative to pay for most of your purchases with them. But you need to be aware that you will get tagged with extra currency exchange fees by the “modern-day robber barons” :-)… i.e. the financial institutions that issue the credit cards.
If you don’t know what fees you’re being charged by your financial institution, you should be able to find them quite quickly by doing a Google search. The following are the fee structures for the conventional charge card that we use at home predominantly.
First off, let’s look at the currency exchange fee that we are charged by our bank on top of what MasterCard charges to do the conversion. In all fairness, the MasterCard parent company rate is fairly reasonable… not much above the Interbank Wholesale Rate, I believe. As you can see below, we are being charged an extra 2.5% on top of MasterCard’s conversion rate. And I quote…
“The exchange rate for converting foreign currency transactions to Canadian dollars is the rate charged to us by MasterCard International (“MCI”) plus 2.5%. … We make the conversion on the date the transaction or refund is posted to your account. “
After that 2.5 % is added, our bank charges us an additional 1% on the whole amount just because it was an international transaction.
“The 1% fee is based on the final transaction amount posted to your account including any fees or foreign currency conversion, if applicable.”
What all of that says to me is that withdrawing cash from ATM’s in foreign countries remains a viable option for international purchases if picking up one of these special travel charge cards does not work for you. If the special travel cards were not available to us, we would certainly be paying cash for virtually everything we purchase except in certain special situations.
Special Situations
That all said, if you are a regular user of cash for payments while travelling abroad, there will be times when it is a better idea to use your charge cards… Even a conventional one… than cash.
These situations are already probably intuitively obvious to you. If you are making an online ticket purchase or booking a hotel when you are abroad, you will need to use your charge card. Keep in mind that it is generally much safer to share your charge card information over the Internet than it is to hand it to a human being.
We would also use one when renting a car… often simply because doing so may ensure that you automatically have collision insurance if that is included with the card you use. We would also use one when making large purchases.
So, we have done a complete turnaround and now pay for almost everything with charge cards while travelling. That may work for you, or it may not. That said, paying cash most of the time or occasionally remains a very good option for saving money on the exchange rate.
Dynamic Currency Conversion – “Danger Will Robinson, Danger”
When I last wrote about international payments, I spoke about a new way for financial institutions to extract a few extra exchange rate dollars from travellers. That is the relatively new service called “Dynamic Currency Conversion”. I had an experience with this in 2023 that I shared in my first article. This is what I had to say.
“It occurred as I went through the process of booking a hotel in Madrid for later this winter. The concept involves the organization doing the financial transaction offering you the opportunity to immediately strike that transaction in your currency rather than the foreign one.
I suppose the idea is that if someone sees a precise dollar charge or amount that is the final amount involved in the currency exchange, they might think that it is a good idea to firm up that number right away, rather than waiting to see what their bank decides the amount will be. However, you will always be paying more than what it will end up being from your bank.
Let’s look at my recent example. In the image above you can see that my immediate payment for one night’s stay at the hotel… the condition of booking for five nights… was offered to me for either €119.70, euros or $176.44 Canadian. Needless to say, I chose to pay in euros. When the transaction was completed by MasterCard, the converted cost was $170.87. I saved over five dollars in fees by not taking the bait.”
Interestingly, this year we will be staying at the same hotel twice. We did so in January when we arrived, and we will be doing so again with a friend at the end of March during Holy Week here in Spain. Once again, I had to pay for the first night’s stay when booking. And, as you can tell by the amount below, I was paying for two rooms this time.
This time, however, (one year later) I was paying with a charge card that did not add in extra currency exchange fees. The net result was they offered me the opportunity to pay $425.37… no thank you. Paying the €268.85 ended up only costing me $395.32 on my charge card bill because of the greatly reduced exchange fees inherent with the use of the card. So, this time I saved $30.05 by not rising to the bait. I suppose, to prorate the first charge to include two rooms in 2023 I saved $10.
You will encounter “Dynamic Currency Conversion” in many places as you travel. They can pop up when making an online credit card purchase as in my example, or when doing a cash withdrawal from an ATM, or at a store where you are making a credit card or debit card purchase. This year it has frequently popped up when we are paying for groceries. Always choose to pay in the local currency.
Rick Steves provides a bit of a comment on the process…
“Some ATM machines also offer DCC, often in purposefully confusing or misleading terms. If an ATM offers to “lock in” or “guarantee” your conversion rate, choose ‘proceed without conversion.’ Other prompts might state, ‘You can be charged in dollars: Press YES for dollars, NO for euros.’ Always choose the local currency.”
Words from the travel wise.
As always, I hope you find some useful bit of information in this post. Happy travels!
