When you use a standard credit card, and make a purchase outside of your home country, there’s generally a fee.
- If your purchase is in a foreign currency, you’re subject to your payment network’s foreign exchange rates.
- Your your card imposes foreign transaction fees, they’ll charge you those — often as much as 3% on top of the amount of the charge.
Even if your card does not impose foreign transaction fees, and if your transaction is in a foreign currency, you’re still going to have the purchase converted to your home currency. And the payment network is likely to make money doing that for you.
You’re still going to be better off with, say, Visa or MasterCard doing it for you rather than a restaurant or hotel — you’ll get a better.
But make no mistake, there’s money being made here in foreign currency conversion even with a no foreign transaction fee card.
- I looked up the conversion of US dollars to Thai Baht on March 3. 1 USD buys 32.356764 Baht.
- Then I pulled up the reverse, and 1 Thai Baht buys 0.030976 dollars.
- A little bit of math tells me there’s a spread of 0.23% between the two rates.
Ok, that’s not a lot and it doesn’t surprise me. But a reader alerted me to the spread on New Zealand dollars.
- 1 USD buys 1.33734 New Zealand dollars
- 1 New Zealand dollar buys $0.761424
- That’s a spread of 1.8%!
This may only be interesting to a handful of people, or maybe this is obvious to everyone already, but Visa essentially has a foreign currency trading business and you’re the other side of their trades.
There’s nothing wrong with there being different prices for buying and selling a currency, of course. You just may not have known you were getting differential pricing when you use your no foreign currency transaction fee credit card.
Of course, it’s much better to do so than to use a card that marks up charges 3%!