Understanding how the credit card foreign exchange rate works is critical before you travel abroad. Do you plan on using your credit card while you are in another country?
If so, you'll probably be charged something extra on top of the purchase price of your transaction. An outrage you say? I think so. Read on to find out how this works.
Credit Card Conversion Fees
When you are in another country and you use your credit card to pay, the merchant will most likely accept the payment without any issue. The merchant will receive payment in his home currency and you will see the charge on your credit card as your home's currency.
In addition to the price of the item that you purchase, you will also have to pay a currency conversion fee on top of this.
The currency exchange rates that the credit card companies provide are typically not that bad. You might have to pay a slight premium over what you would pay with Forex brokers or with an exchange shop at the airport. However, you do get the added convenience of not having to worry about changing your money before you travel.
Although this might seem like a nice service that the credit card company offers, it is a bit of a scam. The credit card company does not actually have to convert any money in this transaction. The credit card company simply lists the transaction in your own currency.
Because of this, you may be inclined to pursue other options when it comes to international travel. You may not want to have to pay the extra fees that come with currency conversion from your credit card. If this is the case, you will need to use cash while you are traveling. THe only problem with this scenario is that you will have to change it into the other currency. You might end up trading more than you need and then you have to trade the currency back when you leave. This means that you will have to pay a premium to the currency exchange shop both times, which is not ideal.
If all of this talk of exchanging currencies sounds interesting to you, you should definitely check out the rest of the site. Here at Forex Trading Rookie, you can learn how to be on the profitable side of currency trades instead of getting fleeced by your credit card company. If this sounds foreign to you, check out this primer on the foreign exchange market here. Otherwise, thanks for stopping by and good luck on your trip.