Owning an international credit card can be of great advantage as one can conduct overseas purchases online, track down the dealer if the goods are not delivered. It also offers a higher level of security as most of the transactions are signature based. Using a credit card for shopping abroad is a great option, but one must be careful to choose the card with lowest fee possible, else the charges can be overwhelming. One must always check the exchange rate offered by the card company before applying for an international credit card.
When you use your credit card to make a purchase outside Canada, the foreign currency either gets directly converted into Canadian dollars before it is recorded on your account, else it will first be converted into U.S dollars and later into Canadian dollars.
The foreign exchange rate (forex rate) specifies how much one currency is worth in terms of the other between two countries. Apart from this you will be charged a conversion fees. If you use your credit card outside of Canada, the credit card issuer charges you the exchange rate as well as the conversion fees when you make a purchase. The conversion fee can vary from 1.8 to 2.5 percent of the amount of the transaction, depending upon the card issuer. Each credit card issuer decides its foreign conversion fees on some criteria. This foreign conversion fee criterion will be indicated in the credit card agreement. Beware of merchants who offer to convert your credit card purchases to your home currency. It is a profit making technique for dealers who add a surcharge on the Base Exchange rate as fee.
When an overseas transaction is made on your credit card, MasterCard or Visa converts it into a wholesale exchange rate. They then charge the credit card issuers a transaction fee of 1 percent. The financial institution issuing your credit card in turn charges you a conversion fee ranging from 1.8 to 2.5 percent. This fee is applied to the wholesale exchange rate they receive from Visa or MasterCard. You can save money by picking a credit card with favorable fees for international purchases. The rates vary from one credit card issuer to another, so make sure you understand all the terms and conditions for foreign exchange that you make with your card. For instance, American Express charges just 2 percent, and Capital One is travel-friendly as it has no additional surcharge. It does not even charge the 1 percent charged by MasterCard and Visa. What is Credit Card and Foreign Exchange Rate?
