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Credit card exchange rates - who sets them?
By Martin Fagan martin@consumerchoices.co.ukUsing your plastic abroad means converting another currency back into sterling. But who sets the exchange rate - the country you’re visiting or your card issuer? We take a look...(Updated 08/09/11)
For all credit cards, the foreign currency exchange rate used is the wholesale rate of exchange set by either of the two major credit card networks, Visa or MasterCard. Regardless of which bank or financial organisation issued your credit card, it will be on one of those two networks.
For example, the Post Office credit card (www.postoffice.co.uk) uses the MasterCard network, while Nationwide credit cards use Visa.
Both Visa and MasterCard set their own exchange rates daily to reflect changes in the wholesale money markets and, despite what many cynics assume, both networks offer very competitive deals.
Because Visa and MasterCard exchange rates are based on wholesale currency prices and both companies deal with hundreds of millions of pounds every day, they buy and sell foreign currencies at the keenest rates and pass this economy of scale on to card holders.
However, when the network has converted the transaction from the foreign currency into sterling using these competitive exchange rates, most card issuers will then add on their own “loading fee” or “overseas commission charge”, which is typically around 2.75%.
This loading fee is one reason many consumers think exchange rates for overseas transactions on credit cards are a rip-off. But remember: this charge is levied by the card’s issuer on the amount you’ve spent once it’s been converted by Visa and MasterCard and not by the network itself. This is why some card issuers impose a foreign loading fee and some don’t.
If you’re seeking a credit card that doesn’t hit you with such a fee, the Post Office, Nationwide and all have track records in issuing fee-free credit cards.
One thing to bear in mind about the networks’ exchange rate is that the rate you will receive is the rate that is valid on the day your payment is processed by your network. Depending on how promptly the seller handles the transactions, this day may be later than the day you make your purchase. However, this delay should only have a miniscule effect on the final transaction as it appears on your statement.
On its corporate website, Visa provides a very useful calculator that allows you to see the current Visa exchange rate for a variety of different currencies. It also allows you to add in the loading fee your bank charges in order to calculate the rate you will receive.
However, it’s important to remember the Visa rate is only valid for the day you check it - it is recalculated daily.
As far as we can establish, MasterCard does not have a similar tool on its website.