Chocolate and Gold Coins

Monday, January 16, 2006

Credit Card Ouch

We received our credit card bill and we were in for a terrible surprise. We were charged 3% for all of our purchases overseas. I should point out that this isn’t unusual but I was not expecting it and I might have saved some money by shopping around.

Credit card companies have always charged a fee for transactions in foreign currency but until recently, they have been completely hidden in the exchange rate. You would never have guessed that they were actually charging a special fee for using your credit card overseas. One or more states sued the credit card companies and now they have to disclose their fees. Well this is the interesting part: the actual credit card company only charges your bank (the one that issued the card) 1% on foreign transactions. But the bank turns around and passes on that 1% charge and adds an extra 2% (or more) on top of that. What do you get for that extra fee – nothing. The 2% is pure profit as best as I can figure out. It is a fee for a service the bank didn’t actually have to perform – a swindle by any other name. And let me tell you, I am not amused.

Why hasn’t competition driven this transaction fee down to the 1% that the credit card companies charge? I’m not sure but I guess that it really isn’t a big factor in determining which credit card people choose. They choose the credit card for the low annual fee and the low interest rate but never think about the transaction fee on foreign purchases. But it would really pay to shop around if you plan to use your credit card overseas. I can tell you one bank not to deal with: Citibank. They have given me nothing but grief. I would be very happy to read some day of the CEO of Citibank going to prison for a long time. He deserves it.

Should you use traveler’s checks? I’m not sure. I think the credit card companies actually provide a really good service by negotiating an excellent exchange rate, but the extra fees largely negate this effect. It is a real bother to use traveler’s checks and I think it might be better to find a bank that only charges a 2% transaction fee or less.

Here are some links to some news articles on the subject. Link1, link2, link3, link4, wikipedia.


  • i still use my credit cards extensively on visits to India.....but perhaps i should keep tabs on this. Usually, i'm so satisfied with the price in India that i don't mind the 2-3 % more.....but it's still a scam.

    And yes....Citibank sucks. Just like Cingular. And comcast. Perhaps it's all companies starting with the letters C...

    By Blogger Sunil, at 1:59 PM  

  • guess you should ask your in-laws to pay for your purchases :-)

    By Blogger Kaps, at 2:35 PM  

  • HAHA Kaps I like the way your thoughts are going :)) :))

    By Blogger Unknown, at 2:46 PM  

  • Hi Sunil
    It certainly is easier to use credit cards. I wished I shopped around for a better deal. If I had only spent $1000 or $2000 I suppose it wouldn't be that big a deal but we spent much more and it really hurts.

    Kaps: Actually my in-laws did spend a lot of money on us. But all the purchases we did that we were not originally intending to spend on we paid for out of credit cards. This turned out to be everything except the trip to Mysore.

    Hi Wicked Angel
    What - are you wicked? :)

    By Blogger Michael Higgins, at 3:19 PM  

  • oops sorry Michael, that was a dig at Kaps :D I was just thinking of his future in laws.

    PS: I am only wicked now and again :)

    By Blogger Unknown, at 3:33 PM  

  • We have used our credit card too in India. I only remember the exchange rate being low. I am not sure if they charged a transaction fee back then (when credit cards had just entered India).

    By Anonymous Anonymous, at 9:54 PM  

  • Indian credit card companies are not doing all that well because many Indians refuse to use their credit cards as liberally as Americans do.

    Indians prefer to use International Debit cards instead. That way we can keep a tab on expenses and you are not paying for services you don't want.

    But if people do keep credit cards, it is for emergencies only.

    And I second Kaps idea. Maybe an NRE account in your wife's name will help!

    By Anonymous Anonymous, at 11:33 PM  

  • Michael,
    Credit cards companies are always coming up with devious schemes to scam you. We live in Brussels but still have our US cards. Chase, in our most recent stmt, has added "Exchange Rate Adjustment" Fee to purchases - for example, in Dec. we had a 200 euro purchase, for which they have added a $7.50 "adjustment fee" (this is after the crappy exchange rate they give you). Huh? I plan to call and ask for an explanation [We have local cards, but that day, we were forced to use our US card because of some swiping issues with the other one]

    By Blogger venkat, at 2:29 AM  

  • Kaps - I fully agree with you ;)

    I called my CC (Amex) before going to India and inquired about any extra transaction fees. I was told that if I inform them before I leave on an overseas trip then they will waive off all fees (or something to that effect). And I don't remember paying any fees. American Express does not deal with any other banks so probably that helps. This information is a about a year old so please check before you sue me :|

    Linked from IndianPad

    By Anonymous Anonymous, at 6:37 PM  

  • Hmmm...welcome to the club, man! I have an Amex and a Visa issued by a credit union. Amex doesn't explicitly levy any charges outside of the forex adjustment (which, I must say is not all that bad) and on the visa, starting on April 1, 2005, I've had to pay a 1% fee. The worst deal I got was from my bank, a crap bank in Minnesota called TCF, who I still have an account with. They started charging me the same 3% you're talking about. When I protested, they said it was 'policy' and didn't really have a satisfactory explanation for it.

    Btw, I've found the US ATM network to be one of the worst, in that there is really not much of an inter-bank network. If you use other banks' ATMs, you get slapped by both the banks. This is in contrast to places like the UK and Australia.

    By Anonymous Anonymous, at 3:52 AM  

  • One of the problems with Amex (in India and Australia at least) is that a lot of times there is a surcharge associated, which obviously the card holder coughs up. I never understand that.

    By Anonymous Anonymous, at 3:56 AM  

  • In India, there is little difference between credit card companies and loan sharks. In fact credit card companies are worse. With a loan shark, you atleast know what terms you are dealing with.

    Consider this, Indian card companies charge you a myriad of late fees, interest rates, surcharges, etc. Most are unwilling to provide detailed statements when they present you with a bill. The average interest rate works out to higher than 30% without the transaction fees of 2.5-3% included!

    Most people rarely look into the fine print. Then they end up piling debt with a crazy interest rate. The result is that they are hounded by collection agencies with their borderline crimminal agents. I've seen it happen to people who were otherwise in complete control of the money they spent. Many ended up cancelling their cards.

    The Reserve Bank of India recently came out with rules against the modern day organised loan sharks. But it seems to be too little. Even the RBI isn't certain of where they are going with the rules.

    By Blogger Alok Patel, at 4:34 AM  

  • Hi Wicked, Rajeshwari, Slogan, Venkat, Indianpad, Nanda, and Alok

    Wicked: just kidding

    Rajeshwari: The disclosure of the transaction fee was start April 1, 2005. Before that it was hidden in the exchange rate which might have been much better than the one you would have gotten at a local bank because the credit cards are major players and have negotiating power.

    Sloganmurugan: Debit cards would work as well as credit cards if they are widely accepted. Here in the U.S. credit cards are accepted everywhere.

    Venkat: well, I wish we only owe $7.50 in extra fees. The thing is that the banks don't get any of the cut from the vendor so they need some gimmick to earn money. This is one of their methods.

    Indianpad: That is interesting. If you left before April of 2005, any fees would not have shown up. If you left after and there were no fees, then I am curious, "Do you only get the good deal if you know what to ask for?" That sounds shady. That sounds like they are trying to have it both ways: rip off the ignorant without upsetting their not so ignorant customers.

    Nanda: I use to have an account at TCF (and Norwest). Yes, the ATM cards here cannot be used out of town unless you pay a hefty fee.

    Alok: Credit Card companies here are fairly similar although there are disclosure laws and I believe a maximum annual rate of 20%.

    Smart people learn to pay off the balance immediately.

    By Blogger Michael Higgins, at 5:54 PM  

  • This happened to me in Tokyo. An extra $400+ that I hadn't planned on spending there.

    Is this extra credit card transaction fee written in the fine print? I never got a chance to read it. I don't think most of us read the fine print.

    2% pure profit... just more proof that credit cards are tools of the devil!! (though certainly more convenient than cash or anything else!)

    By Blogger shannon, at 8:00 PM  

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