In this article, I’ll be talking about transactions using a credit card as they are the most economical and flexible way to access your money while traveling. When traveling abroad, there are plenty of ways to save dozens – sometimes hundreds – of dollars on flights and hotels. Searching to save money on foreign bank transactions fees is less common. But this is a big mistake which can ending up costing you a lot!
Don’t get me wrong, even if some money exchange offices or financial institutions advertise “no commission fees” on their currency conversions, it’s because their fees are included in the offers. When it seems too good to be true, it’s probably not true. A bit like when car dealers offer you 0% financing rates but don’t mention that you would save $3,000 by not using their finance plan. But that’s another story.
Debit cards are not as widely accepted abroad. And unless you take pleasure in throwing money out of the window, I recommend that only as a last resort should you exchange money with your bank before your departure or in a ‘bureau de change’ upon arrival.
Scotiabank Passport Visa Infinite
Credit Card transactions and banking fees
Fee categories
There are 5 possible fees associated with a credit card transaction abroad :
1. Cash advance fees : this fee is applied anytime you withdraw cash from an ATM abroad. It is usually between $2.75 – $7.50. The amount can be both fixed and variable. Example : 1% of withdrawal amount, with a minimum of $7.50.
2. Foreign exchange transaction fee : more commonly referred to as a Foreign Currency Conversion mark-up, it is a fee charged by the card issuer. This fee is usually 2.5% of the transaction amount, but could vary from 0 to 5%!
3. The interchange fee : this is the MasterCard, Visa and American Express slice of the cake – or the partner payment network of whichever financial institution issues your card. This fee also varies enormously, as I will show you later. I invite you to look at the interchange rate issued by Visa and MasterCard for a specific date.
4. Interest fees on cash advances : the grace period granted by the issuing bank is not available when making a withdrawal, whether in Canada or elsewhere. This fee is based on the interest rate of the credit card, usually between 20 and 30% per year.
5. The cash machine charge : this is a fee charged by the owner of the cash machine from which you are withdrawing. It’s usually around $4.
Card Payment
When you make a purchase with your card abroad, you will pay foreign exchange and interchange fees, which will amount to about 3.5% of the transaction amount.
| Purchase Sum (in CAD) | Foreign exchange fee | Interchange fee | Total fee | Cost of purchase |
|---|---|---|---|---|
| 10.00 | 0.25 | 0.10 | 0.35 | 10.35 |
| 100.00 | 2.50 | 1.00 | 3.50 | 103.50 |
| 500.00 | 12.50 | 5.00 | 17.50 | 517.50 |
| 1000.00 | 25.00 | 10.00 | 35.00 | 1035.00 |
Withdrawal from an ATM (cash machine)
When you withdraw money abroad, you are likely to be subjected to the 5 fees I mentioned above. The following cases have been calculated imagining a conservative scenario whereby a credit card charges 1% of the withdrawal sum with a minimum of $7.50, an exchange fee of 2.5% and an ATM which charges $4 a withdrawal.
| Amount withdrawn | Cash advance fee | Foreign exchange fee | Interchange fee | ATM fee | Total fees | Withdrawal cost |
|---|---|---|---|---|---|---|
| 10.00 | 7.50 | 0.25 | 0.10 | 4.00 | 11.85 | 21.85 |
| 100.00 | 7.50 | 2.50 | 1.00 | 4.00 | 15.00 | 115.00 |
| 500.00 | 7.50 | 12.50 | 5.00 | 4.00 | 29.00 | 529.00 |
| 1000.00 | 10.00 | 25.00 | 10.00 | 4.00 | 49.00 | 1049.00 |
Unfortunately, you can’t escape banking fees. And as you can see, you will pay a high cash advance fee and ATM fee for just a small withdrawal. However when withdrawing a large amount, foreign exchange and interchange fees constitute the majority of fees.
Interest fees are not shown in the table above, but to be transparent I have calculated them here. For a credit card with a 20% annual interest rate. If the card balance is refunded 30 days after the transaction, your $1,000 withdrawal will cost you $17 in interest.
Proof by example
Are you skeptical ? Here is a bank statement for a withdrawal of 500 USD which I made on the 29th July 2017 with my Visa Amazon card.
Record of Transaction – Withdrawal Abroad
As you can see, two transactions are visible on the account. The first represents the sum of 500 USD plus the 3.50 USD ATM fee. 632.89 CAD is the result of the conversion from 503.50 USD. The second transaction of 6.33 CAD is the cash advance fee charged by my bank, Chase Canada, and which corresponds to 1% of the amount in CAD. The conversion rate of 1.25698 is from the date of the withdrawal, in other words Visa’s rate, as my Amazon Visa card didn’t charge me a conversion fee at that point.
To be even more precise, the real rate on the currency market on Saturday 29th July 2017 was 1.2432 (closing rate on Friday 28th July). We can conclude that Visa took 1.1% as an interchange fee on that transaction.
To summarize, my withdrawal of 500 USD cost me 639.22 CAD, including 17.62 CAD of bank fees composed of the following:
- 4.40 CAD ATM withdrawal fee or 3.5 x 1.25698;
- 6.33 CAD cash advance fee;
- 6.89 CAD Visa’s interchange fee, or (1.25698 – 1.2432) x 500;
- 0 CAD foreign transaction fee;
- 0 CAD of interest fees.
Be sure to note that the proportion of the fees in relation to the total sum is “only” 2.76% (17.62/639.22). I managed to get this fee rate due the following two tips:
- Like me, you can avoid paying interest fees on cash advances if you make a pre-payment on your credit card, in order to maintain a positive balance on your account after making the aforementioned withdrawal.
- I saved 2.5% on foreign exchange fees as the Visa Amazon card does not charge any. A saving of 500 x 1.2432 x 0.025 = 15.54 CAD!
I regret to announce that the Visa Amazon card, which halved my card fees when traveling overseas, no longer exists. Boo… But I have good news for you! A new credit card, offered by the Scotiabank, has recently been introduced and it also does not charge any foreign exchange fees! HOORAY!
The Scotiabank Passport Visa Infinite credit card
Overview of the card
At the time of writing, this is by far the best Canadian credit card available to Quebecers for saving money on transaction fees abroad.
When abroad, there is a fixed cash advance fee of $7.50 per withdrawal, regardless of the financial institution. However, if the withdrawal is made from an ATM belonging to Global ATM Alliance, the cash advance fee drops to $3.50. Here is a list of all the Global ATM Alliance banks according to country.
Global ATM Alliance banks
The card has the flaw of costing $139 per year, but you get 35,000 bonus points by making regular purchases amounting to $1,000 in the first 3 months. You can credit these points on your travel expenses, which are equivalent to $350. You can therefore think of the card’s first two years as having already been paid for.
Promotional offer : for a limited time, there is no annual fee on the first year!
In addition to providing a full range of insurance, it offers a range of great benefits for frequent flyers such as 6 visits per year to Priority Pass airport lounges around the world.
How much could it save you?
You’re not mistaken – this card doesn’t liberate you from cash advance fees, nor Visa interchange fees, and definitely not ATM fees. But its advantage lies in that it does not incur foreign exchange transaction fees, when all other cards charge 2.5%. Which isn’t bad, considering this is usually about half the total fee!
The table below summarizes the amount saved per amount spent abroad, at a rate of $2.50 per $100. Note that the threshold amount you need to spend in order for the card to be considered “profitable” is $5560 per year, not counting the other advantages of the card, such as the bonus points.
| Total spent | Total saved |
|---|---|
| 100.00 | 2.50 |
| 1000.00 | 25.00 |
| 5000.00 | 125.00 |
| 5560.00 | 139.00 |
| 10000.00 | 250.00 |
| 50000.00 | 1250.00 |
I invite you to read the organizational report on our world tour to see how the Scotiabank Passport Visa Infinite card saved us no less than $2,000 in foreign exchange fees… not to mention the 72,000 points we earned from our spending – a value of $720.
How about Visa interchange fees?
I had a bit of fun calculating Visa’s interchange fees on the flight tickets I recently bought in 7 different currencies.
Record of transaction – currency
For each transaction I calculated the rate applied by Visa by dividing the amount in the local currency by the cost in CAD. I then compared it to the average rate of the day of the transaction (found on the internet), to work out the interchange fee deducted by Visa in terms of amount in CAD and as a percentage. Here is a table with my calculations.
| Date | Amount in local currency | Currency | Amount charged (CAD) | Visa’s rate | Average rate of the day | Visa’s charge (CAD) | Interchange fee (CAD) | Interchange fee (%) |
|---|---|---|---|---|---|---|---|---|
| 2018-07-17 | 420 | AUD | 404.37 | 0.962785714 | 0.96208 | 404.07 | 0.30 | 0.073353 |
| 2018-07-16 | 49476 | LKR | 403.22 | 0.00814981 | 0.008111 | 401.30 | 1.92 | 0.478486 |
| 2018-07-16 | 732 | MYR | 238.19 | 0.325396175 | 0.323315 | 236.67 | 1.52 | 0.643699 |
| 2018-07-15 | 29124.36 | PHP | 717.16 | 0.02462406 | 0.024494 | 713.37 | 3.79 | 0.530989 |
| 2018-07-15 | 320 | USD | 413.63 | 1.29259375 | 1.286798 | 411.78 | 1.85 | 0.450401 |
| 2018-07-15 | 4560 | THB | 185.35 | 0.04064693 | 0.04005 | 182.63 | 2.72 | 1.490461 |
| 2018-07-15 | 23472 | INR | 449.76 | 0.019161554 | 0.018854 | 442.54 | 7.22 | 1.631241 |
I noted that the rate of Visa’s interchange fee varied from 0.07% to 1.63%, which makes an enormous difference! According to my initial research, it seemed that Visa bases its rate on the rate of the day following the transaction, but even when using this rate the numbers still seem unrelated. For now, all I can say is that the rate charged by Visa can change according to a variety of factors such as the currency, the country or even the vendor! And it will be the same with MasterCard. If you know the formula, I would be interested in knowing it!
Apply immediately!
Disclaimer
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Scotiabank Passport Visa Infinite Card
Signup bonus (first year): up to 35,000 bonus Scene+ Points ($350 towards travel)
- 25,000 bonus Scene+ Points when you spend $1,000 in the first 3 months;
- 10,000 bonus Scene+ Points when you spend at least $40,000 annually on your account.
Annual fee: no annual fee on the first year (usually $139)
Earning rate:
- 5X Scene+ Points per dollar spent on travel for the first 3 months (up to $2,500 in total travel purchases);
- 2X Scene+ Points per dollar spent on transit, groceries, dining, and entertainment;
- 1X Scene+ Point per dollar spent on all other purchases.
Perks & benefits:
- No foreign transaction fees;
- 6 Complimentary Priority Pass Airport Lounge Access per year;
- Complimentary Avis® Preferred Plus membership.
Insurance:
- Travel Emergency Medical Insurance;
- Trip Cancellation / Trip Interruption Insurance;
- Flight Delay Insurance;
- Delayed and Lost Baggage Insurance;
- Rental Car Collision Loss/Damage Insurance;
- Hotel/Motel Burglary Insurance;
- Travel Accident Insurance;
- Purchase Security & Extended Warranty Protection;
- Price Protection Service.
I’d like to take this opportunity to introduce you to the Scotiabank Gold American Express Card. Like the Visa Infinite, it does not charge any foreign exchange fees either. It offers a slightly lower welcome bonus, but its annual fee is a bit lower and it gives you 5 points for every dollar you spend on groceries, restaurants and entertainment. Therefore, it can be more advantageous for some people.
Promotional offer : for a limited time, there is no annual fee on the first year!
Scotiabank Gold American Express Card
Signup bonus (first year): up to 45,000 bonus Scene+ Points ($450 towards travel)
- 25,000 bonus Scene+ Points when you spend $1,000 in the first 3 months;
- 20,000 bonus Scene+ Points points when you spend at least $7,500 annually on your account.
Annual fee: no annual fee in the first year (usually $120)
Earning rate:
- 5X Scene+ Points per dollar spent on groceries, dining and entertainment;
- 3X Scene+ Points per dollar spent on gas stations, daily transit, and select streaming services;
- 1X Scene+ Point per dollar spent on all other purchases.
Perks & benefits:
- No foreign transaction fees;
- Amex Front Of the Line;
- Complimentary concierge services.
Insurance:
- Travel Emergency Medical Insurance;
- Trip Cancellation / Trip Interruption Insurance;
- Flight Delay Insurance;
- Delayed and Lost Baggage Insurance;
- Rental Car Collision Loss/Damage Insurance;
- Hotel/Motel Burglary Insurance;
- Travel Accident Insurance;
- Purchase Security & Extended Warranty Protection.
My tips for traveling with a credit card
To save money
If you intend to withdraw money in local currency, avoid interest fees on cash advances by pre-paying your credit card before you travel. Calculate the payment you need to make in order to have a positive balance equal to the total amount you plan to withdraw and spend during your trip.
You can minimize cash advance and ATM fees if you make your withdrawals in an establishment linked to your financial institution. You can inquire about the terms and condition offered by your credit card.
Pay for as much as possible using your credit card. But if you absolutely have to pay in cash, avoid small withdrawals and withdraw as much money as you intend to use during your stay abroad. And if you have foreign currency left when you leave the country, simply swap the remaining “smalls” at the airport exchange office.
Before going abroad
Notify your credit card provider that you are going away, and give them the dates of your trip. Otherwise your card could get blocked for fraudulent activity. I strongly recommend doing this even if your financial institution has a foolproof fraud detection system.
Scan both sides of your card with your phone. You will be better prepared to deal getting a card stolen or lost.
Modify your PIN to be 4 numbers. 5 number PINs are not accepted in every country.
During your trip
Travel with at least 2 cards from 2 different providers (MasterCard and Visa for example). If one card doesn’t work, you can use the other.
When you withdraw money, use ATMs associated with the major banks of the country. As much as possible, use ATMs which are situated inside banks. Avoid those which are in public view and if you have no choice, ask a companion to guard your back while withdrawing.
If you’re going to a developing country, keep American dollars on you. They are accepted everywhere in the world and they could be useful in an tight spot.
In countries with a high risk of fraud or card cloning, pay in cash rather than getting out your card. Without wanting to generalize, the smaller transactions are more risky than larger ones. Small, simple reflexes will save you from big problems.
Conclusion
And finally, the golden rule for credit cards is to ALWAYS reimburse the full balance of the card before the deadline, to avoid interest fees. Remember that you must avoid thinking of a credit card as an opportunity to spend money you don’t have. Rather, it can be considered as a method of payment in the same way as a debit card or cash. If you apply this principle, you are probably ready to try travel hacking (see the articles Travel Hacking 101 and Travel Hacking 102), and use the advantages of credit cards in a profitable way. And if you’ve not had enough, I invite you to read Milesopedia, where you’ll learn everything about credit cards in Canada!
