What makes this such a rip-off is that the credit-card companies already charge a fee -- up to five percent! -- to the merchants for processing the transaction. So Mastercard and Visa are getting a slice from the store, and a slice from the customer. In a global marketplace, Mastercard and Visa are acting like letting you spend your own money is a special service deserving its own fee.
The Citibank rep I spoke to told me that the fee used to be one percent, and that it was hidden on the credit-card bills, but that in 2006, the fees tripled and Citi started to break them out on the bill so you could see how badly you're getting hosed.
I called up Citibank UK and asked them if I was charged any fees when I used my Citibank UK debit card outside of Britain that they told me that no, Citibank UK customers are spared this particular screw-job from the credit-card companies.
When you add it all up, the credit-card companies must be making billions off of American customers -- and all the while they're double-dipping, charging the merchants, too. Link
Update: Steve sez, "Most UK banks will tax you if you take money out of a foreign ATM or use the card abroad (Lloyds, Bank of Scotland, Barclays). Barclays does something truly bad: if you buy foreign currency or travellers cheques *in the UK* they hit you with the handling fee, even though they are not even converting the money. Take the money out of the ATM outside the post office and pay in cash, and you save. Not only is there no moral justification for this, its an odd trend. Imagine if banks started charging you more for alchol or eating out compared to supermarket purchases.
"This shows that:
1. its a bank thing, not a Visa fee
2. its entirely optional
3. they do it, because they can get away with it.
"Consider encouraging your UK readers to open up an account with Nationwide just for routing money abroad."
Update 2: Matt Gross sez, "I’m a travel writer for the New York Times, and I got a Capital One Visa card specifically because it was the only one I could find that does not charge a foreign transaction fee. Of course, they give me loads of other problems (like freezing my account every time I actually charge something overseas), but at least I don’t have to pay an extra 3 to 5 percent!"
Matt Goff sez, "I'm moving to London from the US in April, so I've been researching the credit card f/x transaction fees issue. Bankrate.com has a good summary of what ten major US banks charge for credit card, debit card, and ATM transactions in foreign currencies."
Michael Miller sez, "Wells Fargo is another American culprit bank for Foreign Currency Transaction fees. I've been living in Aotearoa (New Zealand) for 5 years now and a couple of years ago Wells Fargo started charging the 3% foreign currency transaction fee. 3% can add up to a lot of money if you're traveling abroad, especially when you add on Wells Fargo's $5 foreign ATM fee on top of it.
"I still need an American account for investments and a retirement account from my first job so last time I was in America I joined up with a local credit union which charges hardly any fees and only a 1% foreign currency transaction fee. The best advice I can give though is if you're working in large sums of money it's still best to open up an account at a good bank in a foreign country and transfer the money directly into the account.
"Truly American credit unions are a savior in a land of high fee thief banks. The idea that people can gather together and work in a non-profit way to make their lives better is a model that others needing essentials services should emulate. If America isn't going to offer universal healthcare for it's citizens then they should band together and make non-profit health care insurance unions. If there's one area of life that needs a non-profit union of citizens more than banking it's definitely health care."
I write books. My latest is a YA science fiction novel called Homeland (it's the sequel to Little Brother). More books: Rapture of the Nerds (a novel, with Charlie Stross); With a Little Help (short stories); and The Great Big Beautiful Tomorrow (novella and nonfic). I speak all over the place and I tweet and tumble, too.