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Which Credit Card Payment Network Offers the Best Foreign Exchange Rates?

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You may know to avoid cards with foreign transaction fees when you’re making purchases abroad, but many travelers overlook the fact that payment networks offer different foreign exchange rates. TPG Senior Points & Miles Contributor Jason Steele investigates which network gets you the best deal, and provides some top picks for cards to use overseas. 

Even if you only travel overseas occasionally, you should be concerned with getting the best foreign exchange rates. Thankfully, credit cards offer some of the most favorable rates compared to other forms of currency conversion, but that doesn’t mean all cards offer the same rate. In today’s post, I want to take a closer look at how credit card exchange rates are calculated by the major payment networks, and help you choose the best card for your foreign purchases.

How Foreign Exchange Works with Your Credit Card

Credit cards can be used in nearly every country on earth, but there are several factors that determine how much you’re charged when you make a purchase in a foreign country. The most important issue is whether or not your card imposes a foreign transaction fee on charges abroad. Sadly, most credit cards still add a fee of up to 3% (2.7% for American Express cards) to all charges merely processed outside of the United States, including foreign purchases made from home and even those charged in US dollars. And while there’s a growing number of travel rewards cards that no longer impose this fee, the simple fact is that there’s no significant additional cost for credit card companies to handle a charge processed outside of the US, so these fees are pure profit and should be avoided at all costs.

Another factor that can impact your credit card’s foreign exchange rate even more seriously is a scam called dynamic currency conversion. Briefly put, this is when a retailer and a credit card processor offer a “service” that shows the transaction amount in your home currency. The problem is that this adds substantially to the currency exchange rate — often between 5-10% — and to the profit of both the merchant and the credit card processor, sometimes without the actual consent of the customer. Fortunately, this problem doesn’t appear to affect payment processors for American Express, just Visa and MasterCard.

The third-most important fact in your credit card’s exchange rate is the payment network it belongs to, such as Visa, MasterCard or American Express. Although these companies use interbank exchange rates — which offer much more favorable rates than other methods of currency conversion — you can get different rates depending on which payment network your card belongs to.

Comparing Visa and MasterCard Exchange Rates

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MasterCard offers slightly better rates than Visa in most cases.

The world’s most popular payment networks, Visa and MasterCard, are also the most transparent when it comes to how they set their credit cards’ foreign exchange rates. Visa offers its exchange rate calculator, while MasterCard makes its MasterCard Currency Conversion Tool available online. If you play with these two tools long enough, you’ll start to notice a pattern: MasterCard usually has a small — though occasionally quite significant — advantage when it comes to foreign exchange rates.

I compared Visa and MasterCard’s exchange rates for eight major currencies for August 15, 2016, and here’s what I found:

  • MasterCard offered a 0.48% better rate for Australian Dollars.
  • MasterCard offered a 0.29% better rate for Canadian Dollars.
  • MasterCard offered a 0.62% better rate for Great British Pounds.
  • MasterCard offered a 0.18% better rate for Brazilian Reals.
  • Visa offered a 0.05% better rate for Euros.
  • MasterCard offered a 1.1% better rate for Mexican Pesos.
  • MasterCard offered a 0.009% better rate for Hong Kong Dollars.
  • Visa and MasterCard offered identical rates for Japanese Yen.

While American Express doesn’t publish its daily exchange rates, according to many reports it’s more comparable to Visa’s rates than MasterCard’s, which means that MasterCard should offer you a slightly better rate than either Visa or American Express.

Recommendations

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It’s especially important to check foreign exchange rates for large purchases, such as a safari from a foreign tour operator. Image courtesy of Shutterstock.

While these fractions-of-a-percent differences might not seem like a big deal to most people, many award travel enthusiasts do care about these small margins. For example, we can (justifiably) get very excited when a new card offers an additional half a point per dollar spent and be very disappointed when a credit card imposes a 3% foreign transaction fee. In this context, the difference between a good deal and a bad one can easily be a just few tenths of a cent on TPG’s valuation chart.

That’s why it’s worth paying attention to the differing exchange rates offered by payment networks. I don’t see myself pulling up the latest exchange rates before every foreign purchase that I made, but I would pay attention to the current exchange before making a large purchase.

For example, if you were planning to spend thousands of dollars on airfare, hotel reservations or a cruise from a foreign operator, it would be worth taking a moment to see if the current exchange rate differs dramatically between payment networks. If I were to buy a $5,000 vacation package from a British tour operator on August 15, I’d be losing 0.62% in value for each dollar spent by using Visa instead of MasterCard. To put it another way, it would have cost me $31 more to put that charge on my Visa or Amex card than to pay with a MasterCard, negating 35% of the value of the double miles offered by  Capital One Venture Rewards Credit Card compared to the Barclaycard Arrival Plus World Elite MasterCard.

TOP MASTERCARD PICKS WITH NO FOREIGN TRANSACTION FEES

Here are six travel rewards cards to consider for large foreign purchases. They’re all part of the MasterCard network, so in general you’ll enjoy the lowest foreign exchange costs.

1. Citi Prestige Card — This card currently offers 40,000 bonus points after you spend $4,000 in purchases within three months of account opening. It offers 3x ThankYou points for air travel and hotel purchases, 2x on dining and entertainment and 1x elsewhere. Among its numerous features are Admiral’s Club access (though this benefit is ending in July of next year), Priority Pass Select lounge access, a fourth night free at hotels and a $250 annual airline travel credit. Though the card is eliminating some key perks next year, it could still be worth it thanks to the 4th Night Free benefit alone. There’s a $450 annual fee for this card, and no foreign transaction fees.

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Despite some downgrades, the Citi Prestige can still be a great pick.

2. Citi ThankYou Premier CardWhile it’s unfortunately not offering a sign-up bonus currently, this card features a solid 3x ThankYou points for travel purchases (including gas), 2x points on dining and entertainment and 1x elsewhere. There’s a $95 annual fee for this card that’s waived the first year, and no foreign transaction fees.

3. Barclaycard Arrival Plus World Elite MasterCard — This card offers double miles on all purchases, and each mile is worth 1 cent each as a statement credit toward travel reservations. New applicants receive 50,000 bonus miles (worth $500) after spending $3,000 on new purchases within 90 days of account opening. There’s an $89 annual fee for this card that’s waived the first year, and no foreign transaction fees.

4. JetBlue Plus CardCurrently, this recently introduced card offers new applicants 30,000 points after spending $1,000 within 90 days of account opening. You earn 6x points for JetBlue purchases, 2x at restaurants and grocery stores and 1x elsewhere. Other benefits include a free checked bag, a 50% savings on in-flight purchases and Mosaic status after spending $50,000 in a calendar year. There’s a $99 annual fee for this card, and no foreign transaction fees.

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The JetBlue Plus Card offers a great return on airfare purchases with the carrier.

5. Citi AAdvantage Executive World Elite MasterCard — This premium card is currently offering new applicants 60,000 miles after making $5,000 in purchases within three months of account opening. Benefits include Admirals Club membership for both the primary cardholder and authorized users as well as two guests or their immediate family; a free checked; and priority service at check-in, security and boarding. There’s a $450 annual fee, and no foreign transaction fees.

6. Citi AAdvantage Platinum Select MasterCard — This MasterCard offers new applicants 30,000 miles after making $1,000 in purchases within three months of account opening. Other perks include a free checked bag on domestic American Airlines itineraries, priority boarding and a 10% rebate when you redeem miles (up to 10,000 miles per year). There’s a $95 annual fee for this card that’s waived the first year, and no foreign transaction fees.

Featured image courtesy of Shutterstock.

What’s your favorite card to use to get the best foreign exchange rate while earning travel rewards?

Citi Prestige® Card

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  • $250 Air Travel Credit each year, and receive a statement credit, up to $100 every 5 years, as reimbursement for your application fee for Global Entry or TSA Pre √®
  • 4th night hotel benefit for any hotel stay at hotels booked through the Citi Prestige® Concierge.
  • Earn 40,000 bonus points after $4,000 in purchases made with your card in the first 3 months the account is open.
  • Points are redeemable for a $532 flight on any airline or $400 in gift cards.
  • Transfer points to a variety of travel loyalty programs from airlines to hotels.
  • Earn 3x points on Air Travel and Hotels
  • Earn 2x points on Dining at Restaurants and Entertainment
  • 1 ThankYou® Point per $1 spent on other purchases
Intro APR Regular APR Annual Fee Foreign Transaction Fee Credit Rating
N/A 15.49%* (Variable) $450 0% Excellent Credit