Peter Greenberg: Avoiding Credit Card Fees Overseas

Q: Peter, can you help me with a tricky situation? My wife and I will be going to New Zealand for three months. It will be our seventh trip there. I've always put all charges on a Citibank MasterCard and pay the 3-percent foreign currency conversion fee. Is there a better way to pay as we go (i.e., traveler's checks, ATM cards, etc.)? And if credit cards are the best way, is there one that does not charge 3 percent to use it overseas?

–Tom Farrell, Granada Hills, Calif.

A: Credit cards are a good bet for paying for goods and services while abroad, because while you have to pay up to 3 percent in fees, it's often still cheaper than what you might pay to use your ATM card, traveler's checks, or cash. That 3-percent fee comes from the fact that Visa and MasterCard charge 1 percent for foreign transactions, and the card's issuing bank charges at least 2 percent.

Your other option is to withdraw money with an ATM card once you arrive in your destination country, but watch out! Many banks charge a flat fee in addition to the foreign-currency conversion fee. Look for foreign alliance banks, like Bank of America in the United States and Westpac in New Zealand and Australia, that don't charge ATM access fees.

Traveler's checks often command a 10-percent commission, and commissions for cash exchanges can be as high as 20 percent, depending on where you make the transaction.

If you are really intent on avoiding that 3-percent credit card fee, you could apply for a Capital One card, which charges nothing for foreign transactions, or a USAA Credit Union card, which charges 1 percent for its conversions.

Bankrate.com offers a handy chart that lists all the major credit card companies and what they charge for foreign transactions.