Friday, March 5, 2010

Bankers' Math -- Part Quatre

We've all heard about the financial industry profits being way up lately, even as banks are stingy about loaning money and as their CEO's are making big bonuses. Here's another example of why they have certainly lost my respect.

My wife and I travel quite a bit outside of the U.S. We've found that one of the most economical ways to get foreign currency is by using an ATM card in a local machine. Withdrawals and balance inquiries used to be free, in the good old days. Over the years, though, banks have found it lucrative to charge if you use an ATM not in their network. These transactions are electronic and probably cost the bank almost nothing, yet the going fee is $2.50 for a withdrawal, possibly levied by both your bank and the one that owns the ATM. In the case of a foreign transactions, most banks, including ours, tacks on an additional 1% currency conversion fee. Even with these fees, however, it is still generally cheaper than paying 3% per transaction with a credit card, which is the going rate for most card companies (most, but not all -- see below).

Well, the CEO of our bank (First Hawaiian) must be bucking for a bigger bonus, because we received a notice recently that the fee for each ATM transaction in a foreign country will now be $5 -- double the old fee!! Five dollars to have the bank give me back some of MY money?! So, if we go to an ATM say, in France and withdraw $100 in Euros, it will cost us at least $5 + $1, or 6%, and possibly as much as 7.5% if the foreign bank levies a $2.50 fee, or 11% if they raise their own ATM fee to $5. Ridiculous!

Our way around this is to obtain a free debit/ATM card offered by Vanguard, with whom we have a retirement money market account. Because we have a lot of our retirement funds invested in Vanguard, there are no transaction fees at all, though for foreign withdrawals they will still levy the %1 conversion fee. We also recently obtained a Capital One credit card, which doesn't add the 3% foreign transaction fee most other cards do, at least not yet.

So for now we've found away around banker greed. But I'm sure those CEO's are thinking of more ways to get us. After all, it's how they earn those big bonuses!


DoctorMcLovin said...

Thanks for the useful tip.

PaddleDoc said...

ATMs used to work great for foreign travel. I'll watch this more closely next trip abroad.