Money Management – Credit Cards Take 1

People often ask us how we manage our money while we’re abroad. Do we just use cash, can we use credit cards, how much do we pay in fees, etc. Although we have a nice little page (ishouldlogoff.com/finance) devoted to how we do this, there are a couple of things left unsaid on that page.

Does it all work out as it should?

For the last 7 months we’ve been testing those financial products we’ve come to depend on to see if they do deliver as promised. We use a Schwab Visa card as well as a Capital One Master Card which both claim to not charge a foreign exchange fee. We also carry an American Express card and while my parents were visiting, my father was carrying another Visa card that made no such promises. Lastly, there is our Schwab ATM card which promises no foreign exchange fees in addition to no ATM fees.

To test if we are not being charged a foreign exchange fee by our credit cards we used all the cards on a single day in Argentina and have calculated the exchange rate we received, automatically, from each service. Since my father had his Visa card with him, we chose to test the Schwab Visa rather than the Capital One Master Card to determine whether Visa itself took a fee.

Using the rate provided for me by Yahoo! Finance (far better for these purposes than Google Finance, although not nearly as snazzy) of 3.8395 pesos per dollar on the day in question I’ve calculated the above exchange rates and their variation from that rate provided by Yahoo. As you can see both Schwab cards (the ATM fee is included in the calculation, Schwab will reimburse this at the end of the month) charged me a foreign exchange fee less than 1% higher than the rate reported by Yahoo. Amex was next cheapest at an even 3% and the regular Visa came in around 3.5%, about 3% higher than my Schwab Visa card.

First off we need to understand that I am a travel blogger without regular access to a Bloomberg machine nor did I ever work as an investment banker. Yahoo provides only one rate to me and I’m not sure if each card pulls a spot rate or a day’s closing rate or whatever other options might be out there. Basically I’m disclosing that all the numbers I provide are “close enough for government work” type numbers.

It looks as those Chase bank charges 3% more than Schwab bank. I think it is also safe to say that the 0.5% fee we see from Schwab (and therefore from Chase as well) is the foreign transaction fee charged by Visa and not by the bank. Nothing in life is guaranteed but death and taxes and this is yet another form of one of those taxes.

In its documentation, American Express claims a 2.7% foreign transaction fee. The fee I’ve calculated is slightly higher, I believe this may be a difference in fluctuating exchange rates if American Express pulls a spot rate. In fact, if I compare the AMEX rate to the exchange rate I received at the ATM rather than to the rate provided by Yahoo finance I get 2.7%. Additionally, this means that Visa itself may be charging somewhat less than 0.5%.

In summary it looks like my special ‘no foreign fee’ cards do deliver as promised. Chase is clearly a poor option, as I’m sure are most other banks’ credit cards. Hopefully I’ve not confused you but I have left several questions open.

1.Do Visa and MasterCard charge the same fee?
2.Does my Wachovia/Wells Fargo ATM card charge the same fee as my Schwab card?
3.How does CapitalOne’s promise compare to Schwab’s promise of no fees?
4.Have I made a grave error in proving to all of you that I’m a nerd at heart?

Future posts on this subject will aim to tackle numbers 1-3. Number four I fear, has already been answered. Please me know if there is something else you think should be tested or there is something obvious I’ve missed.