Never Pay This Fee Again

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Everywhere you look, bank fees have been on the rise. So when banks actually start cutting some of their fees, it's cause for celebration. Unfortunately, you won't realize the benefits of those cuts until the next time you take an international trip -- but when you do, the savings could be huge.

In recent months, a number of credit card issuers, including American Express ( AXP ) , Citigroup ( C ) , and JPMorgan Chase (NYSE: JPM) , have reduced the charges they add when you make foreign transactions on certain cards they offer. By doing so, they've taken away one of the least-recognized fees that cardholders ever have to pay.

Understanding foreign transaction fees
It's not ridiculous for banks to want to add at least some fee for foreign transactions. After all, when you buy something with your credit card abroad, your card company has to provide foreign currency to the seller, handle the currency conversion, then later bill you in U.S. dollars. By doing so, you avoid the hassle and expense of using more costly services like airport currency exchange kiosks to trade greenbacks for foreign cash.

 But things get out of hand in the frequent layering of fees. Visa (NYSE: V) and MasterCard (NYSE: MA) , for instance, have long charged 1% for their various branded cards. Issuing banks often add their own extra charges on top of that. As a result, cards from several issuers, including Wells Fargo (NYSE: WFC) and US Bancorp (NYSE: USB) , end up taking a total cut of 3% from foreign transactions.

Moreover, exactly what constitutes a "foreign transaction" has changed over the years. You might think the fee should only apply if it actually involves a foreign currency, but now, any transaction that involves a non-U.S. bank in any way triggers the expense. So even if you arrange to pay someone in U.S. dollars, you might still get hit with the fee.

How to travel cheaper
Perhaps the toughest thing about the foreign transaction fee is figuring out that it exists in the first place. If you look hard, you'll typically find it buried in all the fine print you skim over when you first sign up for a credit card. But since most people travel only occasionally, most people don't have a lot of experience with that fee.

To make the most informed decision, use this simple process:

  • Before you leave on your trip, call your credit card companies and ask what the foreign transaction fee is. It's also a good opportunity to let them know that you're leaving, since it alerts their fraud prevention unit that the unusual charges you'll be racking up are legitimate.
  • If a card you have doesn't charge a fee, you're done -- just use that one. But if all your cards charge fees, do a quick cost-benefit analysis: Does it make sense to sign up for a competitor's card? If you travel infrequently, probably not. But if you're a global jetsetter, it may well be worth paying up for a card that gives you a break on foreign fees.

In addition to select cards from the issuers mentioned above, Capital One has a long-standing policy of not charging foreign transaction fees. The company even eats the 1% that Visa and MasterCard charge, leaving you free and clear without any fee at all.

Don't leave home without it
With all the complications of planning a foreign trip, the last thing you need to worry about is whether your credit card will rip you off by adding a huge hit to your monthly bill. By taking a few minutes to get familiar with your card's foreign transaction fees, you can avoid a big surprise when you get back from your trip.

Get the latest on managing your credit efficiently in the Fool's Credit Center .

Fool contributor Dan Caplinger travels fee-free. He doesn't own shares of the companies mentioned in this article. American Express and Visa are Motley Fool Inside Value selections. The Fool owns shares of JPMorgan Chase and Wells Fargo. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy stays out of your wallet.

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