When you charge purchases in foreign currencies to Swiss credit cards, card issuers charge you foreign transaction fees. In addition to the foreign transaction fee, you also pay a markup on currency exchange rates.
Foreign currency credit cards and prepaid cards are denominated by a foreign currency, which means you all transactions and card payments are settled in a specific foreign currency. Issuers market these cards as a way to bypass foreign transaction fees and currency exchange spreads.
A number of Swiss payment cards are offered in Euro and U.S. dollar versions in addition to the standard Swiss franc cards. You can easily find these cards using the currency filters in the comprehensive moneyland.ch credit card comparison.
Here, we take a look at the pros and cons of foreign currency credit cards to help you understand whether or not these cards can help you save money.
Advantages of foreign currency credit cards
1. No foreign transaction fees
When you use a Swiss credit card to make a purchase from a merchant outside of Switzerland – for a hotel stay while traveling or a new gadget from a foreign online store, for example – you pay a foreign transaction fee. Depending on the card you use, you pay a fee equal to between 1.2% and 2.5% of each transaction.
When you use a euro credit card to pay for purchases charged in euros or a U.S. dollar credit card to pay in for purchases charged in U.S. dollars, you do not pay a foreign transaction fee because you are paying in the same currency. If you make a lot of purchases in a foreign currency, using a credit card in that currency can save you money.
Example: You regularly shop online at German retailers and spend a total of 10,000 francs on this habit every year. If your credit card has a 2% foreign transaction fee, you would spend 200 francs per year on foreign transaction fees alone. Paying for your purchases with a euro credit card would eliminate that expense.
2. No currency exchange spread when making purchases
In addition to foreign transaction fees, Swiss card issuers also charge you for currency exchanges by adding a markup to the actual currency exchange rate. This is called a spread. The difference between the actual exchange rate and the rate you get can add another cost which can be even higher than the foreign transaction fee. Depending on the card you use, the day on which you make the purchase and the currency in which the purchase is charged, the markup on the currency exchange rate can be higher than 2%.
When your credit card account is denominated by the same currency in which a purchase is charged, there is no need to convert the currency when the purchase is made. The combined foreign transaction fee and exchange rate spread savings can easily equal 3% to 4% of the amount transacted.
Disadvantages of foreign currency credit cards
1. Annual fees
Many foreign currency payment cards issued in Switzerland have relatively high annual fees. Getting a foreign currency credit card only makes sense if the amount you save on foreign transaction fees is higher than the difference in the annual fee you pay compared to using the Swiss franc version of the card.
2. Currency exchange costs when settling credit card bills or reloading prepaid cards.
Unless you have a foreign currency bank account in the same currency from which you can pay your credit card bill or reload your prepaid card account, you will have to settle your bill or reload your prepaid account using Swiss francs.
When you pay your bill or load your card in Swiss francs, your card issuer exchanges the currency at the same or a similar rate as the one which it uses for conversions when you use your card to pay in a foreign currency.
So while you do bypass foreign transaction fees by using a foreign currency credit card, you do not bypass the exchange spread – unless you pay your credit card bills from a bank account denominated by the same foreign currency.
Unless you have an income or savings in the relevant foreign currency, then you will have to exchange money at some point in order to pay your foreign currency credit card bill. You should account for exchange spreads which apply when you make deposits into your foreign currency bank account in Swiss francs to pay via transfer, or when you or exchange money to settle your credit card bill via deposit slip.
Foreign currency credit cards and prepaid cards can save you money if you spend a lot on purchases in specific foreign currencies like euros or U.S. dollars.
Whether or not avoiding foreign transaction fees makes paying the card's annual fee worth it depends on how many purchases you charge to your credit card. If you plan to pay your card bills in Swiss francs, make sure to compare the cost of the credit card with the potential foreign transaction fee savings.
You will get more value from foreign currency credit cards if your Swiss foreign currency credit card issuer or the bank at which you hold a foreign currency bank account uses favorable exchange rates for payments or deposits made in Swiss francs.
If you earn income in the same foreign currency which denominates your foreign currency credit card, settling your credit card bills in foreign currency lets you avoid currency exchange spreads entirely.