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Times have changed; electronic bank transactions have taken over the duties of the Foreign Exchange desk and your credit card may be out of tune.

Loking forward to a foreign holiday this year?  Kids traveling abroad with a school group?  In the old days -- not so long ago -- no sensible traveler would leave the country without a packet of travelers checks neatly stowed in their carry bag.  No more. New strategies are required for both credit card purchases and cash needs while traveling outside the country.

Credit Cards Charges In Foreign Countries

Most of us have long settled into a credit card routine with the Visa, MasterCard and AmEx cards we’ve had for years.  Often, the choice of those cards has been based on loyalty programs—airline miles, hotel points, etc.  So, we go about daily life, buying, charging, amassing miles or points.  Sometimes, we even get to use those miles, though, if your experience tracks mine, you’ll sit for years with thousands of unused miles, some of which will eventually be lost to expiration dates.

When you travel out of the country, some new wrinkles enter into the credit card transaction. Most bankcards and American Express tack onto your charges, after currency conversion, a “Credit Card Foreign Transaction Fee”.  The rates are not small—from 1%-3% of your charged expenditures including hotels, meals, gifts, etc.  Individually, these aren’t such a big hit, but when you add up the total credit card charges on a multi-week family trip to Europe, you’ve wasted a decent amount of money.  Multiply this fee over a number of foreign trips, and through the years, the sums can be substantial. To keep up with updates on credit card offers and, specifically, foreign transaction fees, check out the Card Ratings website.

There are two financial institutions that still offer credit cards with no Foreign Transaction Fees (as of summer 2009).  Capitol One (800/410-0020) offers a No Hassle Miles Reward Credit Card, with one mile per dollar up to $1000/month in charges, and double miles above that.  There is no annual fee, but for the Ultra Card version of this program, a $39 annual fee gets you double miles on all transactions. Miles can be redeemed for airline tickets, hotels and rental cars at a value of one mile per dollar of travel cost.  You book your travel through any agent, website or vendor, charge it on your card, then redeem miles to cover the charges.  When redeemed, the net effect is close to a 2% cash back return, though the return is available only for travel purchases. 

An equally good deal is the Schwab Bank Invest First Visa Credit Card (866-724-9223). This one has no Foreign Transaction Fee, no annual fee and, in lieu of airline miles, offers 2% cash back on every purchase.  The only complication is that you will need to open a Schwab One brokerage account, where the cash back funds will collect.  There are no fees for the brokerage account, just a slightly more complicated application process, but there is an added advantage on the cash front, described below.