How To Save On Foreign Currency Fees When Travelling

Look closely at your credit card statement after a trip out of the country and you’ll notice that your credit card company did you a favour by converting all of your foreign transactions into Canadian dollars.

While the conversion is done for you at the market rate, the credit card issuer then tacks on another 2.5 percent for its trouble.  Since the fee is blended into your foreign currency conversion, the consumer is none the wiser.

The currency conversion fee isn’t set by Visa or MasterCard; it’s an optional fee charged by the company issuing the credit card — typically a bank.  Since foreign currency fees make up a significant source of revenue, especially for travel cards, almost every card issuer in Canada charges the 2.5 percent fee to its customers.

Related: Top Travel Rewards Credit Cards In Canada

These fees add up to millions of dollars unnecessarily spent by Canadian travellers.

How To Beat The Foreign Currency Fees

Chase Canada is the lone credit card issuer who has chosen not to charge this optional fee on foreign exchange.  The company issues credit cards for popular retailers like Sears, Future Shop, and Best Buy.

They’ve added two other cards that frequent travellers should consider in order to save money on foreign currency fees.

First is the no-fee Amazon.ca Rewards Visa, which launched in April, 2012.  Purchases made with the card earn you Amazon rewards points that you can redeem online — 2,000 points is worth a $20 Amazon.ca gift card.  You’ll get two points for every dollar spent on Amazon.ca and one point for every dollar spent elsewhere.

Related: Would You Buy Your Groceries Online?

Another Chase issued credit card that’s worth a look is the Marriott Rewards Premier Visa.  This hotel credit card launched in September, 2012 and comes with a $120 annual fee, which is waived in the first year.  You’ll also get 30,000 bonus points after your first purchase, plus a free night stay (together, that’s enough for five free nights).

The biggest feature of both the Amazon.ca Rewards Visa and the Marriott Rewards Visa is when you make a purchase in a foreign currency you’ll only pay the exchange rate — no foreign currency transaction fees.

A 2.5 percent savings in foreign currency transaction fees is a big deal for travellers when you consider that most travel rewards credit cards only give you one or two percent back on your spending.

Related: Three Rewards Credit Cards Worth A Look

So while foreign exchange fees all but eliminate any benefits consumers receive from their rewards, the real question is; what are the alternatives when travelling abroad?

The Government of Canada recommends that you use a major credit card for big purchases like your airfare, hotel bills, and restaurant tabs, in most countries.  Use the credit card instead of cash wherever possible.

They also suggest you bring enough cash to get by for a couple of days and keep it in a money belt or in several different pockets in case your wallet is lost or stolen or your bank accidentally freezes your cards.

Other tips to consider when travelling abroad:

Your debit card probably won’t work at most stores or restaurants abroad, so you should carry some cash to cover daily expenses.  Always use bank-affiliated ATMs when you travel, but be aware that your debit card may not work in every ATM machine in your destination country.

Related: The Many Hidden Costs Of Travel

Canadian travellers’ cheques are not widely accepted around the world, but if you prefer to use them instead of credit or cash, order the cheques in the local currency and carry multiple cheques in small denominations.  If you can’t order cheques in the currency of your destination country, order them in U.S. funds, which are widely accepted.

Final thoughts

Travelling can be expensive enough when you consider the cost of flights, hotels, and rental cars.  Look at how much you pay in foreign currency fees if you frequently travel outside the country and find a way to get around those charges by using a no-foreign transaction fee credit card.

How do you pay when travelling outside of Canada?


28 Responses to How To Save On Foreign Currency Fees When Travelling

  1. Interesting that Chase is the only one that doesn’t charge the foreign currency surcharge. I don’t have a Chase card but we do try to buy foreign currency when exchange rates are favourable and then pay cash for most things when travelling. Every time I pay with a credit card in the US I am always unpleasantly surprised at the total cost. It’s always nice when I travel on business as the full amount of the charges are reimbursed if I pay with my credit card and I get cash back rewards at the same time

  2. Yes! I’m just applying for the Amazon card, hopefully I’ll be blogging about it soon! I recommended this card to a friend while she’s in France – it’s so difficult to find cards that don’t have that 2.5% fee! Great list, wish more companies would do this!

    • @Janine – That’s great, I look forward to reading about it. Over Christmas I kept seeing the card advertised whenever I bought something on Amazon. I think you get $15 in Amazon rewards when you sign up.

      Hopefully we see more card issuers waive this fee in the near future.

  3. I do alot of travelling in the USA so I got a no-fee US Dollar Visa card from TD Bank. All my purchases on the card remain at the price I paid in the USA (or abroad) and I pay it off when I get home. When the exchange rate is good I buy extra USD and prepay the credit card, keeping a credit balance for future purchases.

    • @Kim – If you do the majority of your out of country travel south of the border then the U.S. dollar account and credit card make sense. From what I hear, TD has that set-up very well but I’m not sure about the other big banks.

  4. If you have a US$ brokerage account, and a US$ credit card (no fee when $5000 kept in a savings account at some banks eg. TD)), when travelling in the US you charge expenses to the credit card and pay the bill from dividends from your securities (or exchange Canadian $ with Norbert’s Gambit) in the US$ brokerage account. Great to hear about the Amazon.ca Rewards Visa card. I’ll be getting one for travel outside the US. Thanks!

  5. Having travelled throughout Europe,Africa and the US in recent years. I have had no problems with using ATM machine’s .

    Africa and Europe use the pin and chip technology, it seems that only in the US are they stuck on the swipe of debit cards.

    One point my bank mentioned to me was to set up another account at another financial institution and carry a second ATM card with available cash in that account.Just in case a foreign bank machine “captured” my card unexpectedly.Though that has never been my experience I do have a CIBC VISA card I bring as a backup to my PC MasterCard. I always phone ahead to mention where I am travelling. In the last 3 years the VISA card has been refused always on the first transaction in which ever foreign country it is being used in, when I phoned to complain saying I had phoned with my travel agenda ahead of time VISA stated it was an automated system that made that happen. I mentioned it didn’t happen if I switched to a different card (and got rid of theirs:))

  6. Really great tips Rob. We are snowbirds and we use to use a CIBC us visa card but now we only use it as a back up. We use the Chase Sears master card. With the dollar fluctuating so much it really has been great. Yesterday I withdrew cash from the ATM and CIBC charged 13.6% plus a $5. transaction fee. Chase charged 11% for a gasoline purchase. Seven years of getting ripped by the banks — they have lost our business. By the way, bring your cash from home (Canada).

  7. We’re going to Cuba and that’s even more complicated. You can’t use a US-based credit card or US$ travellers cheques. And I hear ATMs are really hit and miss so you can’t count on them. At least bigger restaurants should accept credit cards (not American Express, of course).

      • Chase is a US-based institution and so the Amazon Visa also won’t work in Cuba or any other country that the US has financial restrictions or sanctions for.

        To their credit, the application states this up front when you apply for the card.

        • @Brent – you are correct. Here is the wording on their website:

          As of July 2013, the Amazon.ca Rewards Visa Card will not work in Burma (Myanmar), Cuba, Iran, North Korea, Sudan, Syria and Libya.

    • In theory, that sounds like a great idea. However, most European countries are reluctant to accept travellers cheques. If they do, banks charge exorbitant transaction fees. We’ve been charged up to 12 Euros by a bank to cash cheques. Travellers cheques are becoming obsolete.

      • I agree with Peter. We stopped using AMEX travellers cheques because of the fees. You can avoid the fees however if your destination location has an AMEX office where they will cash your cheques for free.

  8. Good tip on keeping the money separate. My wife and I always like to split it into 3-4 piles just in case it gets lost, stolen, etc. we are stuck in a foreign country!

    We try to use our credit cards for everything “store” purchased. I didn’t realize there was a hidden fee in there. Definitely something to check for the next time we plan to travel.

  9. @Kim I used to do same as you. Now I convert CAD to USD (to fund my USD account) using VBCE online website, offers better rates than the TD US borderless ‘preferred’ rate. Right now, for instance TD costs CAD$1.12 to buy USD$1 while VBCE costs $1.10. That’s $100 saved on a $5000 conversion.

  10. I always bring my Canadian credit card when I travel overseas but it’s for emergency purposes only. I always try to bring cash in the currency of the country where I’m travelling. I know that I do pay fees when I convert my money at a Canadian bank and of course there are security issues when travelling with cash but I do it anyways. The risks involved with fraud overseas and the extra foreign exchange costs from the credit card company could end up costing a fortune.

  11. I have the complete opposite view from Tahnya. The in-branch currency exchange rate at a bank also includes a fee of about 2.5%, so you’re not saving anything by getting cash that way instead of using a credit card at the point of sale. Plus, I’d be more concerned about getting separated from my cash than I would be about fraud when using my card overseas. If my cash is stolen, that’s it, whereas my card offers protection against fraud. Although I may be inconvenienced if the card is flagged by the issuer, I’m not going to be out of pocket for any fraudulent charges.

    Personally, I carry foreign cash to use in situations where a card isn’t accepted or appropriate, and for emergencies, but I use my credit card wherever possible. By doing so, I also get travel rewards of 2% on my spending to help offset the card’s foreign currency fee. Of course, there’s no such benefit to cash, making cash in my case actually more expensive than using the card. The cost of using cash would be even higher when compared to one of the no-FX fee Chase cards mentioned.

    In other words, it may FEEL like you’re saving money by paying with foreign cash instead of a credit card, but that’s only because you pre-paid the currency exchange fee when you bought the cash in the first place. Of course, if you did so at a better exchange rate than is available when you travel you may still come out ahead, but it could just as easily go the other way.

  12. For Travelling I keep a US dollar accounts at TD & ING & purchase $100 dollars when exchange rate is good through the year to average cost My bulk of US cash is at Ing because they also pay interest each month whereas TD does not pay interest unless you have $1000 plus in account When I come home & have any extra funds left I deposit to one of the accounts since I have already paid conversion fees & use next time

  13. Most of my travel is to the U.S. and the worst was when I purchased an item for $200 that was incorrectly entered at the register so the clerk credited the amount on my credit card, then re-entered at the correct price. Of course when converted to Canadian dollars the credit was at the exchange rate less 2.5% so the difference between the original entry and the credit was $10 (2.5% of $200 entered twice) after conversion which was very annoying and all because of the clerk’s mistake.

    That’s when I got a U.S. credit card at my bank, BMO. I also have a U.S. account at the bank so I always pay off my credit card from the U.S. account, no conversion required there.

    BMO’s online brokerage is Investorline and I also have accounts there where I pay roughly $10 per trade. Whenever I need more U.S. funds I convert roughly $5,000 by buying 500 shares of the ETF “DLR” in Canadian funds and sell the same number of shares DLR.U in U.S. funds to settle in my U.S. dollar account. The exchange costs are then about $40 – $20 for the two trades and $20 for the bid/ask spread around the wholesale exchange rate – much less than the $125 that banks and credit card companies charge, i.e. 2.5%. I’d save even more if I converted $10,000 at a time but I don’t travel that much or use that much U.S. money.

    This should work with any major bank that allows you to have U.S. dollar accounts and keep separate ledgers for your U.S. and Canadian cash in their associated online brokerages. It works for me at BMO – the only caveat is that you have to phone in the trade for DLR.U – and should work at Royal, but is a pain at TD with the way TD Waterhouse set it up to clear sales of U.S. dollar equities through their U.S. money market account. I’m not sure you can directly transfer U.S. cash from that fund to your TD U.S. dollar bank account. I don’t know what the situation is at Scotia, CIBC or any of the other banks.

    • Martin F what you are doing is called Norbert s gambit and yes BMO appears to be the best brokerage to do it.

      http://canadianmoneyforum.com/showthread.php/17705-Settlement-Required-when-Performing-Norbert-s-Gambit-in-RSP-account/page2

      it’s always been possible to gambit online, instantly, at BMO. No phone call necessary.

      couple hints, if i may?

      1) prepare everything scrupulously. Quiet day. No news, dividend X dates or earnings coming up. Sleepier the better.

      2) you will have to do the buy side first. Once you start, scribble down all the figures as they flash before you. Price, no. of shares, commission, etc.

      3) let’s assume you are going from CAD to USD. As soon as the CAD buy side is filled, commence the US sell side. Answer the prompt that it is a US sale. Again, scribble down all figs.

      4) the completed gambit will look strange in the account for a day or even 2 days past settlement date. It will show that you are both long & short the same security. Be patient. A day or 2 after settlement, all will have offset each other, the share positions will vanish & you will be left with nothing but the lovely new currency of your choice, with no FX fee whatsoever.

      it’s the arbitrageurs who are keeping the CAD prices & the USD prices of an interlisted stock picked to the bone. The gambit traders are just riding on the coattails of the arbs.

Leave a reply