Editorial Policy

More Card Issuers Waive Foreign Transaction Fees

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By Eva Norlyk Smith, Ph.D.
April 14, 2011

With traveling season just around the corner, there is good news for Americans planning to vacation abroad this year.

As competition heats up among credit card issuers, more issuers are waiving the foreign transaction fees on purchases made overseas.

This is especially good news for frequent travelers because foreign transaction fees average around 3 percent of the amount charged. The fee collected is shared between the card issuing bank and payment processors, such as Visa or MasterCard. American Express and Discover, which both issue credit cards and process the transactions themselves, charge slightly lower fees for overseas transactions, at 2.7 percent and 2 percent respectively.

An unpopular fee
For cardholders who rely on credit cards for travel expenditures, foreign transaction fees can quickly add up — and experts say they are becoming increasingly ubiquitous as well. For example, most card issuers now charge foreign transaction fees on online purchases made from overseas vendors — surprising consumers. The latter charge is particularly unpopular, say experts, as few cardholders making purchases online realize that they could end up with a 3 percent surcharge if the vendor they are dealing with is located overseas.

However, over the past few months, some card issuers have started to waive foreign transaction fees on select cards in an effort to get a competitive edge. Capital One has long been the only card issuer not charging foreign transaction fees, but card issuers Chase, Citi, American Express and HSBC have now jumped on the bandwagon and are waiving fees on a handful of cards.

Transaction fees waived — for some
Even as the trend toward eliminating foreign transaction fees appears to be catching on, some consumer advocates point out that not all cardholders will be able to benefit.

“The trend is mainly towards eliminating the foreign fee for premium cards that already have high annual fees attached to them,” says Joe Ridout, Manager of Consumers Services at Consumer Action, a consumer advocate group. “So it’s not like these cards are fee-free. If you’re a big spender and will run a lot of spending through the card, that annual fee may be worth it. But consumers just looking to avoid foreign transaction fees may be better off with a card issuer that doesn’t charge transaction fees on any of its cards.”

Ridout points to Capital One as one example of a card issuer that waives foreign transaction fees on all of its credit cards. Capital One also absorbs the 1 percent fee charged by Visa and MasterCard for processing overseas transactions.

Meanwhile, Andrew Davidson, senior vice president at Mintel Comperemedia, predicts that we’re yet to see the end of this trend. As competition in the credit card industry intensifies even further, it may result in other positive fall-outs for consumers, says Davidson.

Mailed credit card offers almost tripled to 1.4 billion in the fourth quarter of 2010, compared to 551 million in the same period in 2009, and they have been on the rise for five consecutive quarters. Even so, Davidson points out, more than half of those offers are mailed by the top three card issuers, JP Morgan Chase, Citi and American Express. As more card issuers scale up credit card solicitations, he predicts that the competitive pressure will intensify.

“Issuers are looking for ways to stand out in an increasingly cluttered mailbox,” says Davison. “In this environment, there are clearly opportunities for issuers willing to swim against the tide and reduce or eliminate some of the fees and rate increases we saw in the wake of the CARD Act.”

In addition to waiving foreign transaction fees, Davidson says that card issuers are also increasingly lowering credit card purchase APRs, extending the length of balance transfers offers and even waiving balance transfer fees.

Is your card included?
Before traveling overseas, check to see if foreign transaction fees are waived from your card before deciding which card to bring. Here is a list of credit cards with fees currently waived:

  • American Express. American Express is waiving foreign transaction fees on its Platinum cards and Centurion cards
  • Capital One. Capital One has long been a market leader in waiving foreign transaction fees, so all Capital One credit cards are exempt.
  • Chase. Chase has eliminated foreign transaction fees on upscale cards like the Chase Sapphire Preferred card and the Chase Priority Club Select Visa card and on hotel rewards cards like the Hyatt and Marriott cards. It has also waived fees on frequent flier cards, including the Continental Airlines Presidential Plus card, the British Airways Visa Signature card and the United Mileage Plus Club card.
  • Citi. Citi has waived foreign transaction fees on two of its cards, the ThankYou Premier card and the ThankYou Prestige card.
  • HSBC. HSBC does not charge foreign transaction fees on the HSBC Premier World MasterCard.