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When you return from an international getaway, you'll notice that your credit card issuer doesn't bill you in euros, yen or pesos for the things you bought. It converts your international purchases to U.S. dollars — and that might make you wonder if the conversion is costing you money.
If you're a smart traveler, you've made a point of avoiding foreign transaction fees, and you've budgeted carefully. But one thing remains unclear: Could you get a better exchange rate elsewhere?
The short answer: possibly — but it's probably not worth losing sleep over.
Visa and MasterCard set exchange rates for each currency every day, and those rates are published online. NerdWallet made more than 15,500 queries for rates between the U.S. dollar and 44 foreign currencies and found that MasterCard has a slight advantage over Visa for several currencies. Even so, the differences tend to be small, and rates at both networks are similar to market rates.
MasterCard offered a better rate than Visa more than 70% of the time for 23 out of the 44 currencies surveyed in one of NerdWallet's comparisons. Visa had better rates for three currencies more than 70% of the time. The other currencies were either tied or could be considered a toss-up.
But that doesn't mean that using a MasterCard will guarantee you better exchange rates on your next trip. Depending on which currency you're using and which days you're traveling, Visa might be better. Here’s how the currencies we surveyed stacked up:
Most days, Visa's and MasterCard's rates are different from each other by only a fraction of a penny. That's because a 2006 court decision sharply limited which types of rates Visa and MasterCard can use, and it prohibits networks from embedding markups or fees within their rates.
Still, the networks have some wiggle room in determining these prices, and they rely on different wholesale and government-mandated sources.
Visa’s rates are based on “the range of rates available in wholesale currency markets or a government-mandated rate in effect for the applicable processing date,” according to a statement from Visa.
MasterCard’s rates are based on “multiple market sources — including what’s published by the central banks, Bloomberg, Reuters and other sources,” Beth Kitchener, a spokeswoman for MasterCard, said in an email.
This explains why these rates tend to vary slightly, even on the same day. Neither network commented further on the results of this study.
Big savings? Not so much
In the credit card world, pennies are a big deal. We celebrate a 2% cash-back rewards rate and look for ways to avoid various fees ranging from 1% to 5%. But when it comes to exchange rates, these variations generally don't amount to much savings. MasterCard's average rates, for example, were less than 1% more favorable than Visa's average rates for the vast majority of currencies surveyed.
Worst-case scenario, the average international traveler would end up paying only $8 more on his or her next trip as a result, based on the most recent data from the National Travel and Tourism Office. That’s roughly the price of a fancy fridge magnet. Unless you're spending tens of thousands of dollars abroad each year, these differences won't affect your bottom line much. Instead, focus on these fees, which could cost you more while you're away:
Foreign transaction fees. Most credit cards tack fees of 1% to 3% on every purchase made outside of the U.S. You can avoid these by getting a card with no foreign transaction fees. Foreign transaction fees are separate from currency conversion.
Dynamic currency conversion fees. Merchants in foreign countries may give you the option to see your total in U.S. dollars at checkout and have the transaction processed in dollars. If you use this so-called dynamic currency conversion service, you'll get a less favorable exchange rate — often equivalent to about a 3% fee.
If you can avoid these fees, you'll still be getting a world-class deal, regardless of your card's exchange rates.
Both Visa and MasterCard rates were similar to interbank rates — that is, wholesale rates that are used for exchanges of $1 million or more — provided by Oanda, a widely used foreign exchange platform. You can get these highly favorable rates with your credit card even if you're only purchasing a pack of gum.
Know what to expect
The next time you make an international purchase, you don’t need to wonder how much your credit card issuer will charge you. You can know for sure by checking the rates online.
Before checking out, convert the foreign currency price to dollars on Visa’s currency conversion site or MasterCard’s currency conversion site. Generally, your issuer will apply this rate to your international purchase, round it to the nearest penny, and list the adjusted result on your statement.
You might not get the best rate available every day. But if you steer clear of fees, you'll still be getting a pretty sweet deal.