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Update: Some offers mentioned below are no longer available. View the current offers here: Starwood Preferred Guest Credit Card from American Express, Starwood Preferred Guest Business Credit Card from American Express
Today TPG Contributor Nick Ewen looks at how some of the best travel credit cards shoot themselves in the foot by charging foreign transaction fees, and explains why it’s in everyone’s best interest to do away with those international charges.
I’m sure that like me, the vast majority of TPG readers travel at least occasionally outside of the country. I also assume that many of you hold at least one travel credit card with no foreign transaction fees (I myself hold six, a number that actually surprised me). However, there are some cards that definitely shouldn’t have foreign transaction fees given their “premium” label. As a result, in today’s Weekly Wish I will shame the biggest offenders in this arena, and encourage them to do better (for their cardholders and themselves) by getting rid of foreign transaction fees altogether.
Before we get to that, a little context for the post. Before I got deep into this points and miles obsession hobby, my wife and I still traveled out of the country a decent amount. We would diligently call our no annual fee credit card providers on the drive to the airport to inform them of our travel plans. We never considered that the customer service rep on the other end might have been laughing on the inside, thinking about the 2.5 – 3% fees that we would be paying, simply for the privilege of using our cards abroad. We just didn’t know there was another option!
Fortunately, credit card issuers have realized that no foreign transaction fees can be a huge benefit, and we’re actually seeing enhancements in this area, like Chase removing these fees from the United MileagePlus Explorer card and Delta announcing the removal of foreign transaction fees on the Gold Delta SkyMiles, Platinum Delta SkyMiles and Delta Reserve cards (as well as the business version of each). Today, there are numerous cards that waive foreign transaction fees, including several with annual fees under $100 (or even less than $50). These include:
- Chase Sapphire Preferred ($95 annual fee, waived for first year)
- Chase Ink Plus and Ink Bold ($95 annual fees, waived for first year)
- Barclaycard Arrival Plus World Elite MasterCard ($89 annual fee, waived for first year)
- Citi Hilton Reserve Visa ($95 annual fee)
- British Airways Visa ($95 annual fee)
- Marriott Rewards Premier ($85 annual fee)
- Hyatt Credit Card ($75 annual fee)
- Capital One Venture Rewards Credit Card ($59 annual fee,waived for first year)
- Chase IHG Club Select Credit Card ($49 annual fee, waived for first year)
The Southwest Rapid Rewards Premier Credit Card has no foreign transaction fees, and Southwest barely flies to any international destinations! Even a small collection of no annual fee cards (like the BankAmericard Travel Rewards® Credit Card, regular Barclaycard Arrival, and PenFed Premium Travel Rewards card) have no foreign transaction fees. Clearly this is (or should be) a relatively straightforward benefit to offer, and it can’t cost a significant amount, or else these annual fees would be much higher.
TPG did a nice recap of cards that don’t charge foreign transaction fees back in February. Bravo to those on the list! Chase in particular has a wide variety of cards without these added fees, while American Express and Citibank’s offerings are less numerous.
So which cards need a stern talking-to? Here, in order from least to most egregious, are 5 cards that absolutely positively SHOULD NOT charge foreign transaction fees:
Citi AAdvantage Platinum Select World Elite MasterCard and US Airways Premier World MasterCard: I lump both of these together because of the soon-to-be-completed merger of American Airlines and US Airways. Both of these cards come with a wide variety of benefits, including relatively large sign-up bonuses, free checked bags, and double miles on purchases with the respective airlines. These cards are marketed to frequent flyers on American and US Airways (respectively), much like the Gold Delta SkyMiles American Express card is marketed to frequent flyers of Delta. All three cards have similar annual fees:
- AAdvantage World MasterCard: $95 (waived for the first year)
- US Airways MasterCard: $89
- Delta Gold Amex: $95 (waived for the first year)
The Delta card waives foreign transaction fees. Why don’t AA and US Airways get with the program?
Starwood Preferred Guest Credit Card from American Express (Personal and Business versions): Take another look at the above list of cards that don’t charge foreign transaction fees. Most of the major hotel chains (Hyatt, Hilton, IHG, and Marriott) offer cards with no foreign transaction fees. The most prominent holdout: Starwood Preferred Guest! Both the personal and business card come with a $65 annual fee (waived for the first year), but also charge a 2.7% fee for non-U.S. dollar transactions. As TPG highlighted highlighted previously, he actually uses another card when he visits SPG properties outside of the U.S. That can’t be good for business. One of his wishes for 2014 is for American Express to remove these “dopey” fees, encouraging loyal SPG members to use their co-branded card when traveling abroad.
Club Carlson Premier Rewards Visa: Along the same lines as the SPG American Express, the Club Carlson Premier Rewards Visa Signature is another card that should do away with foreign transaction fees. The sign-up bonus (85,000 points – 50,000 after first purchase and 35,000 more after spending $2,500) and yearly anniversary bonus (40,000 points) can bring you a lot of value ($510 and $240, based on TPG’s August valuations). Furthermore, cardholders get a free night on award stays of two nights or longer, so this card has a lot of attractive features. However, if Club Carlson really wants to become competitive with the likes of Marriott, Hilton, and Hyatt, removing the foreign transaction fees on this card would be a good step, especially since many of their top Radisson Blu properties are located outside the U.S.
American Express Premier Rewards Gold and Business Gold Rewards: As we saw earlier, American Express just can’t hold a candle to many other issuers when it comes to foreign transaction fees, and the personal and business versions of the Gold card are prime examples. Both of these cards carry hefty $175 annual fees (though they are waived for the first year). That makes it hard for American Express to justify charging 2.7% on all foreign transactions. In my mind, this seems like a deliberate decision made to push cardholders (or businesses) into the higher annual fee of the American Express Platinum card. However, I don’t think that potential applicants (especially businesses) would be excited about paying more than double the $175 in annual fees, not to mention the added fees for additional cardholders (personal Gold Amex accounts have 5 free additional cards, while business Gold Amex accounts pay $50 for the first additional card and nothing for cards beyond that).
The bottom line here is that these cards are losing potential applicants and future cardholders. Sure, there may be folks out there that don’t travel internationally at all, and thus have zero need for a card with no foreign transaction fees. Still others insist that cash is king, like my mother-in-law, who refuses to listen to my suggestions for which cards would be best for a European cruise.
However, think about a medium-sized business that occasionally sends employees on international business trips. Suppose monthly overseas purchases amount to $10,000 (or $120,000 per year). That business has zero incentive to sign-up for any of the cards listed above when there are cards like the Chase Ink Plus or Ink Bold that waive these fees. What business wants to incur additional fees of at least $3,000 a year with no added benefit?
Keep in mind that these card issuers don’t just lose out on the foreign spend charged to a card. They miss out on everything. Consider that same example and say that the business also charges $100,000 a month in the U.S. (or $1.2 million per year). By charging foreign transaction fees, card issuers miss out on $1.32 million every year in eligible spend. That’s not pocket change.
Individuals obviously will spend less, but again, these card issuers are missing the boat big time. Even a relatively low spender could charge $10,000 – $15,000 a year on a given card, especially if he/she regularly stays in Starwood properties or makes use of the airfare/gas station/supermarket bonus spending categories on the Amex Gold card. However, these fees might deter a potential applicant who travels outside of the country, pushing them toward other offerings.
The point here is that removing foreign transaction fees would be a win-win for cardholders and card issuers. It would increase the applicant and cardmember pool, and encourage cardholders to charge more purchases overall.
Which other cards do you think should be on the list? Are there any “premium” cards that you’ve skipped because of foreign transaction fees? Please share your thoughts in the comments below! With great transfer partners like United and Hyatt, 2x points on travel & dining and a 50,000 point sign up bonus, the Chase Sapphire Preferred is a great card for those looking to get into the points and miles game.
With great transfer partners like United and Hyatt, 2x points on travel & dining and a 50,000 point sign up bonus, the Chase Sapphire Preferred is a great card for those looking to get into the points and miles game.