Which credit and debit cards are best overseas?

— -- Ever since we started tracking foreign exchange fees, readers keep asking us to identify the "best" credit and debit cards to use when out of the country. A typical inquiry:

"Is there any way to avoid exchange fees when I travel in Europe?"

The short answer is, "Yes, at least in some countries," but for most travelers the question is a bit more complicated. Given all of the recent upheaval in the banking business, we decided that an update of our earlier compilations was in order.

"Best" qualification

Your ideal choice of a credit card depends on a wide range of factors—annual fee, APR, rewards, billing cycles, and such—as well as costs of foreign use. We can't begin to sort out all of those concerns: Our examinations of the "best" cards focus solely on foreign charges.

Overview

The general principles of using plastic in foreign countries haven't changed since our earlier Foreign Exchange 101 report. As a brief recap, when you use a MasterCard or Visa credit card overseas, the international MasterCard and Visa networks add a conversion fee of 1%, and most US banks add their own 2% fee, for a total of 3%. When you use a debit (ATM) card for cash outside the US, your bank adds some combination of a per-withdrawal fee up to $5, a conversion fee up to 3%, or maybe both. By contrast, when you use travelers checks or currency you generally lose anywhere from 5% to 10% in various conversion fees and charges.

Thus, we still recommend "credit cards for big purchases; debit cards for cash," and suggest you forget about travelers checks or exchanging US currency. However, we see some minor changes in specific credit and debit card specifics. Here is the latest information we have, as of early May 2009.

Credit card charges, foreign currency

When you use a credit card outside the US, your charge will normally be in the currency of the country you're visiting. When that charge goes through the system and reaches your bank, most US banks still tack their own surcharges onto the standard 1% charged by the international networks. This is essentially for doing nothing, because the charge is already in US dollars by the time your bank receives it: The bank adds the 2% because it can, out of pure greed.

Fortunately, a few banks do not add a surcharge. Here are current charges for some of the larger card issuers: