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There's no such thing as a free lunch.

Is there such a thing as a free credit card with free currency exchange?

Every debit or credit card I have seen charges for foreign currency transactions. Either:

  • explicitly by charging a fixed amount per transaction / withdrawal, or
  • explicitly by charging a percentage per transaction / withdrawal, or
  • implicitly by charging a poor (for the customer) exchange rate, or
  • charging money for the card in general (my bank charges between €36 and €250 per year for credit cards)

I've used exchange services claiming to have no foreign payment fees, but instead they charged an poor (for the customer) exchange rate, such that the customer still pays — one might or might not call this a hidden fee.

I've seen claims that there exist cards that charge customers none of the above. When I compare the Mastercard exchange rate with the XE mid-market exchange rate for 10,000 ₽, the Mastercard exchange rate considers this costs €140.47, whereas the XE exchange rate consider it costs €139.87 — in this case the difference is only €0.60, which is a relatively small amount (but not zero); I don't know if this difference is due to measuring exchange rates at different times or if it is by design to cover risks or other costs.

Arguably and theoretically, a card provider could get 100% of their income from interest and merchant fees, but I've never seen such a card.

Does such a thing exist as a credit card that does not charge customers at all for foreign currency transactions — neither explicitly nor by charging a poorer exchange rate? What's the catch?

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    That's not a fee. When I looked in to this for Visa (I don't care to do research for you) the rate used was the prior day published rate. You're (probably) comparing a prior day closing rate to an intraday quote and calling the difference (which could at times be positive) a fee. If you want to have some argument that your definition of a fee applies to a trade spread, that's fine, but that's not a fee. – quid Jul 9 at 17:03
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    No. You're not trading anything. You are spending and mastercard is very graciously covering all of it at a published daily rate with no concern for trading dynamics or spreads without adding a fee. If you want to call 'sometimes the rate rate used by mastercard is higher than the second by second intraday quote that's fine' a fee that's fine but it's not a fee. – quid Jul 9 at 17:07
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    I've been extremely clear about the point i'm making. Something you're calling a fee is not a fee. Since you're calling this a fee you are getting to an erroneous conclusion. I'm not answering because the question is off topic. – quid Jul 9 at 17:11
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    @quid I have reformulated my question in order to not distract with a disputable terminology, and I have deleted my comments. – gerrit Jul 9 at 18:34
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    @stannius, I'm not disputing that. I'm not disputing that some cards use a garbage rate. I know Visa's more elevated product tiers in the US use an independently verifiable published daily rate with no additional load (Chase Sapphire and Schwab Investor Checking Debit) but that's not helpful for someone in the Ukraine or Denmark. I suspect MasterCard's elevated product tiers run the same way. No Fee No Load No Annual Fee cards 100% exist in the US (USAA is an example I put in another comment). Either way a loaded rate is not what's being illustrated in the example in this question. – quid Jul 9 at 19:31
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On April 10th of this year, I paid for a hotel in Ireland with my credit card issued by a well known issuer (and advertiser) of "no foreign transaction fee" credit cards. The hotel cost €241.20 and my issuer converted that to $272.31, an exchange rate of 1.1290. XE's sister site X-Rates reports that the exchange rate on that day was 1.1267. So I got a slightly less favorable exchange rate than what X-Rates said, but only to the tune of two-tenths of a percent, or 55 cents. I didn't pay any additional, explicit foreign transaction fee, nor do I pay an annual fee for that card.

The hotel had initially, without asking, charged me in USD. They charged me $292.23 which is an exchange rate of $1.2116 USD per EUR. They hid a 7% fee in their exchange rate! They gave me the usual "convenience for our guests / most prefer it this way" excuses but did reverse the charge and re-charge me in EUR.

I could have paid in cash. If I took some out of a foreign ATM from my US credit union, I would have gotten a similar or possibly more favorable exchange rate, but paid an explicit 1% foreign transaction fee. I also could have exchanged cash at an airport booth or ordered cash delivered through my bank; both have worse exchange rates and higher fees.

I don't know why there is the 0.2% difference between X-Rate's reported exchange rate and what I actually got, but of these three ways I could have paid for the hotel, using my "no foreign transaction fee" card was the closest to zero.

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    (+1) That's the most important point. On a similar note, exchanging cash at a foreign exchange bureau would also cost a lot more. For perspective, the 0.2% difference is lower than the day-to-day fluctuations in the exchange rate. – Relaxed Jul 9 at 21:49
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    FWIW, I believe it violates card brand rules to do a currency conversion on the merchant’s side without explicitly asking the customer and showing them the relevant rates. – Bobson Jul 10 at 11:34
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I think you're comparing apple and oranges a little bit.

XE is just showing you "mid-market" rates (half way between the bid and ask rates) and even has a disclaimer:

All figures are live mid-market rates, which are not available to consumers and are for informational purposes only.

In reality, all wholesale market FX transactions have a bid/ask spread that is an implicit "cost". You can't convert RUB to EUR and back without "paying" the bid/ask spread.

Retail FX quotes may have a different bid/ask spread in order to bake in some profit, but it's not clear in this case if that's what MC is doing. You'd need to find the true rate you'd pay on XE to be certain.

If you want to call that a "fee", that's fine, but I don't think it's unreasonable for a bank to include these implicit costs in their rates.

The bottom line is that your question posits that MC is really charging you the mid-range rate plus some mysterious "fee". The reality is that the quoted mid-rage rate is not the real exchange rate. The real rate would be the bid or the ask (depending on which way you're converting). More precisely, it's whatever rate someone else will give you. Since you don't say what XE's actual rate is (and may not be able to get it until you actually make a conversion) it's impossible to compare the rates directly. MC might be adding a bit of margin to their conversion rates, but it's not clear (to me) that is the case without knowing the true wholesale "market" rate.

  • all currency transactions have a bid/ask spread that is an implicit "cost", that's not true. With Transferwise, if I convert €1000 to £, it charges an exchange rate of 0.89930 GBP/EUR + a €4.58 fee. If I convert £1000 to €, it charges an exchange rate of 1.11198 + a £3.95 fee. 0.88930*1.11198 = 1.00000. There is a fee, but there is no bid/ask spread implicit cost — all costs are explicit (which is why it's my tool of choice for exchanging currency). But I've seen claims people use cards without either such a spread, or any fees. My question is: how? – gerrit Jul 9 at 15:28
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    @gerrit Then they cover their implicit transaction costs with the explicit fee. What would the actual conversion rate be with XE if you converted RUB to EUR? I bet it would be closer to MC's rate. – D Stanley Jul 9 at 15:33
  • From how I understand their business model, they're not actually exchanging anything — they just hold reserves of all the currencies they support and when a customer "exchanges", they receive one currency and pay out another; as long as there is a balance with customers exchanging in both directions, they never need to make any actual exchanges at all (which is how they can keep costs down). It may well be that Mastercard and others do the same. – gerrit Jul 9 at 15:37
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    @gerrit, no the answer is one of the things you're calling a fee is not a fee; and how you understand their business model is wrong. USAA has a no foreign exchange fee no annual fee credit card but it seems you're not in the US so that's not helpful to you. – quid Jul 9 at 16:46
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    @stannius That's a good point - maybe I overcomplicated it. I deleted that part since it's speculation anyways. – D Stanley Jul 9 at 19:05
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In the US I have a credit card that offers purchases with no foreign transaction fee (otherwise typically 3%) and does not have an annual fee.

Being a MasterCard, the foreign exchange is done at the MasterCard rate (published on their web site the following day). As the rate is the same whether it is a conversion to or from the currency means there is no spread in the rate. It is not predictable either (which is why some merchant's try to get you to convert at their (usually worse) rate at the time of purchase).

With regard to the 'free lunch' argument - the credit card company typically charges the merchant 2% to 3% for the transaction processing (or a minimum amount, whichever is higher).

Shop around. You may find that banks more oriented towards an international clients may be better suited. They may try to steer you to products with fees (free for the first year typically) however.

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As written, your question reads a bit like a "shopping list" polling question, which is effectively off topic per site guidelines. I don't have a direct answer in terms of "does such a card exist" - but I can frame-challenge the assertion your question seems to be based on:

Arguably, a card provider could get 100% of their income from interest and merchant fees, but I've never seen such a card.

Theoretically that's possible. But it increases the bank's risk, because it has the effect of decoupling income from expenses which means the bank's income model now becomes more complex, since they have to estimate those expenses instead of just charging for them. It also makes the bank's products less marketable to people who don't behave the same as you.

Bank fees are implemented for a number of reasons - but generally, fees exist as a way to tie income to expenses. Credit cards are a great example of this - banks have a lot of very different kinds of expenses related to credit cards, based heavily on how customers behave, and the fee structures typically reflect this.

If a bank wanted to drop all fees and make all their income via interchange ("merchant fees") and interest, that would mean they'd have to estimate typical expenses and then build that in to their interchange and interest structures. Doing so means some customers will be able to "cheat" - they may take a lot of actions that are expensive for the bank, but they don't pay any more or any less than any other customer - the rest of the customers effectively subsidize the people behaving that way, which means they are effectively paying more than they would if there was a direct tie between fees and expense. This may mean the bank's products are not competitive for those customers.

And, if more customers behave that way than the bank predicted, they will lose money on the product. Compared to a more typical structure with fees tied to these activities, where their income effectively self-regulates to cover expenses as customer behaviors change.

  • I can understand this entirely - and yet people are claiming they have cards with no fees of any kind. – gerrit Jul 9 at 15:04
  • There are probably fees of some kind on all cards, and/or expenses tied indirectly to costly transactions (such as using a higher-than-market exchange rate, or different interest rates for different transactions). People claiming "card X has no fees" may just not be hitting the fees that card X implements. – dwizum Jul 9 at 15:14
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    @gerrit where are the people claiming that cards exist with no fees of any kind? I see people (and issuers) touting no foreign transaction fees, but surely every card has merchant fees, over limit fees, interest rate, late payment fees, etc. – stannius Jul 9 at 19:25
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    @stannius I should correct myself. I meant that it was claimed one can use a card, including abroad, without (directly) paying any fees of any kind. For example, claim here. – gerrit Jul 9 at 19:44

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