A strong dollar could offset those foreign exchange fees
By Libby Wells • Bankrate.com

Savvy consumers saving for an overseas vacation this summer are already figuring the rising cost of credit card use into their travel budgets. But if you haven't been out of the country in several years, or it's your first international trip, there is one fee that could catch you by surprise: the foreign currency surcharge.

Many of the major credit card issuers charge 2 percent to 3 percent for card transactions in foreign countries. Visa and MasterCard have long been levying a 1 percent fee for foreign currency transactions against the financial institutions that issue cards with their brand name. In 1998, the banks began passing that cost, plus some, on to customers.

What it boils down to is that if you charge $5,000 in Italy using a Chase Manhattan-issued MasterCard, for example, you will pay an extra $150, or 3 percent. The bank collects 2 percent and the franchise organization takes 1 percent. The fee appears on your credit card statement in U.S. dollars.

Strong dollar is good news
The good news for travelers this season is that the strength of the dollar could offset that fee, particularly in Europe where the sagging euro has made pricier destinations such as Germany more affordable.

"The dollar is unusually strong, as strong as it's been in 10 years," says John Rothfield, senior currency strategist for Bank of America, which has branches in 38 foreign countries.

"The one exception might be Britain. The pound is fairly cheap, but not as cheap. It tends to be more linked to the dollar. London is one of the more expensive destinations."

The dollar also won't go as far in Japan and Latin America, says Rothfield. "The yen is very strong, and the Mexican peso has been very strong."

Paying with plastic has advantages
Even if exchange rates aren't good enough to negate currency surcharges, credit cards are still the best way to pay for goods and services outside the United States, for several reasons.

• By using plastic, the consumer pays the wholesale rate of exchange, a preferred rate normally reserved for banks and large companies. Travelers will get a much better deal than they would if they converted dollars at a foreign bank, currency house or merchant.
• US laws enacted to protect consumers in case of card fraud and billing disputes are applicable to foreign transactions.
• Credit cards are widely accepted, especially in Europe.

Cash advances, however, are a budget-buster. Interest rates are higher, there's no grace period, withdrawal fees are steep, and issuers usually require customers to pay off their lower-interest transactions first.

Travel advisers recommend carrying a mix of plastic, cash, debit cards and traveler's checks.

"It's just a good idea to have a variety of payment methods," says Janie Graziani, spokeswoman for the American Automobile Association. "If you take a taxi when you first arrive, the drivers like cash. It's also good to have for tipping the bellman and things like stamps and postcards."

Debit card better than cash advance
If you run out of cash, debit cards -- which also offer a favorable exchange rate -- are handy because ATMs are easy to find. The Visa network has more than 480,000 machines around the world; MasterCard has more than 350,000.

Before departure, it's a good idea to buy some foreign currency traveler's checks, Graziani says. "Monitor the exchange rate for a few weeks before your departure, and buy when the rate is favorable."

Extra costs such as currency surcharges -- even soaring fuel prices and hikes in credit card interest rates -- are not expected to deter Americans from going abroad this year. About 10 million will head to Europe, half of them during the summer.

"The economy is good enough and people feel secure enough in their jobs that they are not going to cut back because of prices," says Graziani. "We Americans love to travel."

-- Posted: April 3, 2000