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I travel a lot, and it is very convenient when overseas to use my credit card. I know from my foreign colleagues that their credit cards are not subject to foreign transaction fees. What's the cheapest option in this situation?

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Q: I travel a lot, and it is very convenient when overseas to use my credit card. However, I am charged a foreign transaction fee of 3 percent. The only cards that do not have a foreign transaction fee have an annual fee. I know from my foreign colleagues that their credit cards are not subject to foreign transaction fees. The system seems to be a little unfair. It feels like profiteering! Would you have any advice on the cheapest option in this situation?

A: As someone who's been traveling overseas for over 20 years, I know your pain. Exchanging currency used to be a kind of ritual, and it made sense for a bureau de change or a bank to cover the cost of keeping all that foreign money behind the counter. With so many of today's travel transactions happening electronically, do we really need to pay anybody to convert one set of bits into another? I think not, and some credit card issuers actually agree with me.

For years, foreign transaction fees offered most banks a tidy little revenue center. Paying 3 to 5 percent on the interbank exchange rate was cheaper than the lousy deals you got at the airport, and you weren't left with a bunch of foreign change at the end of your trip. That's why I love to use my Capital One credit card when traveling outside the United States. Through a quirk of international finance law, Capital One enjoys "home bank" status in both the United States and the UK. That unusual designation requires Capital One to cover all currency conversion costs for its customers.

Therefore, whether you're using a premium card or one of their no-frills credit cards, you're not paying a surcharge. Sharp observers of international markets have noticed that Capital One's currency calculations tend to lag the markets by a few tenths of a percentage point, compared to other credit card issuers. That's still a huge savings compared to the typical foreign exchange fee on a Visa or MasterCard, especially on a no annual fee credit card.

Still, you could qualify for an even better deal if you've got a great credit score. The folks at Pentagon Federal Credit Union recently eliminated foreign transaction fees on all their credit cards. If you're willing to make a one-time donation to a non-profit organization that supports military families, you can qualify for membership. Once you're in, you can apply for any of their cards. None of their cards have annual fees, but the Visa's going to be accepted a little more widely than the American Express.

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