How does Capital One Calculate its Credit Card Currency Exchange Rate?
June 17, 2013 102 Comments
Typically, when you use an american credit card to buy a product in a different currency, the credit card company will charge you a 2-3% fee right away – called the foreign transaction fee – before it converts the currency according to the latest exchange rate. If you travel a lot, the foreign transaction fees can add up very quickly. Fortunately, there are a number of credit cards, including all Capital One cards, that charge NO foreign transaction fees. For a list of these cards, use this post from Nerd Wallet . If you are reading my post, however, I’ll assume you already know about the no transaction fee credit cards, and are interested in some more in depth questions like: How does the credit card company determine their currency exchange rate, and can the credit card company use the exchange rate to charge hidden fees?
The best way to answer these questions is to use an actual credit card transaction with my Capital One Visa card as an example. I will provide copies of my receipt and credit card statement of one transaction in Part 1. In Part 2, I’ll answer questions about the currency exchange.
Part 1 – The Transaction Documents:
I am a proud owner of a Capital One Visa card precisley because of its no foreign transaction fee. I have taken the liberty of posting photos of 1. my actual paper receipt, 2. a screenshot of my credit card Statement, and 3. a screenshot of my transaction list from Capital One’s website. All of these documents contain information about a customs tax transaction that I made in Hannover, Germany on February 1st, 2013.
1. Actual paper receipt: Below is a photo copy of my receipt (Quittung) from the Customs Office (Hauptzollamt) in Hannover, Germany. The important information here is the Total (Summe) I paid, which was 37.80 Euros, and the date (Einzahlungstag), which was 01.02.2013. Please note that the date on this receipt is in DD.MM.YYYY format, which is typical in Germany.
2. Screenshot from my Captial One Credit Card Statement: When I paid 37.80 Euro for the custom tax, I used my Capital One credit card where I have an account in the United States. Since my account is in US Dollars, the transaction had to be converted from EUR to USD before it showed up on my statement. Below is a screenshot of a small part of my February Credit Card Statement (my account number is blacked out) where it lists the transaction “Nebenzollzahlstelle HannoHannover” and the exchange rate used. You can see that my 37.80 Euro transaction became a 51.84 US dollar transaction once the exchange rate was applied.
3. Screenshot from my transactions list on Capital One’s website: Below is a screenshot of my transactions list that you can find by logging into your Capital One online account. The transactions listed here are exactly the same as the transactions that show up in your monthly credit card statement, with one notable difference. In the online transaction viewer, you can click the “+” button next to the transaction date and it will show you both the Transaction date, and the Posting date. In my example, it shows that while the transaction actually occurred on February 1st, the transaction did not post until February 2nd. This is an important distinction because Capital One (and most credit card companies) calculate the exchange rate based on the date of the posted transaction.
Part 2 – The Currency Exchange:
How does Capital One determine its currency exchange rate? The answer is pretty simple actually. Capital One uses the exact exchange rate that is posted on the Visa Corporate Exchange Rates webpage (Link updated 11/2014). This is based on my conversations with Capital One customer service, other credit card message boards like here, and – most importantly – checking the data for myself. Below are two screen shots of Visa’s webpage (the input screen on top and the output screen on the bottom) that show Visa’s exchange rate for February 2nd, 2013.
You should take note two things. First, is that I set the the bank foreign transaction fee to 0%. Second, is that Visa’s exchange rate is the inverse exchange rate of what was provided on my credit card statement. The exchange rate on my credit card statement was in USD to EUR, whereas the Visa exchange rate is given in EUR to USD. In order to compare apples to apples, I converted Capital One’s exchange rate to a EUR to USD rate. This is done simply by taking the inverse: 1 / 0.72916667 = 1.371429. In the end, the exchange rates do not match exactly – Capital One has an exchange rate that is .005% (five thousandths of one percent) higher. The difference, however, is negligible, since both exchange rates result in a final cost of $51.84 after rounding.
Does Capital One hide extra fees in its exchange rate? No, not that I can tell. A lot of people are skeptical when they hear Capital One say “No Foreign Transaction Fees!” They think that maybe Capital One makes up for the 0% transaction fee by having a higher currency exchange rate than other cards that are Visa sponsored. In fact, you might look at the extra .005% that is added in my example above and say “Aha! thats how they get you!” But that would that be really silly for Capital One, who makes entire advertising campaigns on “No Fees.” If they were going to try and recoup the money they lost by having a 0% foreign transaction fee, wouldn’t they increase your exchange rate by a lot more that .005%? After all, other banks charge up to 3% foreign transaction fees.
After reviewing a few of my other credit card transactions, I found that the difference between Visa’s exchange rate and Capital One’s exchange rate varied for every transaction. Capital One does not up-charge .005% for every transaction, in fact, sometimes the Capital One exchange rate is lower than Visa’s. I’ve compared three of my transactions below, two of which were posted on the same date. Interestingly, Capital One listed two different exchange rates for the two transactions that were posted on the same day. I won’t post screenshots of my statements and receipts like the first example for the sake of brevity – you’ll just have to take my word for it.
Why the variation in Capital One Exchange Rates? The difference in exchange rates appears to be the result of Capital One trying to avoid having to deal with tenths or hundreths of a cent. Allow me to explain. In transaction 2, when you multiply 409.60 Euros by 1.307666 (Capital One’s inverse exchange rate), you get $535.6199997. When rounding up at a precision of 6 decimal places, you end up with $535.620000 exactly. As shown in the screenshot below, all of Capital One’s currency exchanges result in perfectly whole numbers (no fractional cents) when you round and use a precision of 6 decimal places.
I assume that this means that Capital One uses 6 decimal points for all of their banking transactions. If they used Visa’s exact exchange rate instead and rounded with a precision of 6 decimal places, they would have charged me $535.616307. Since I am only going to pay Capital One exactly $535.62, they would in effect be losing $0.003693 ($535.620000 – $535.616307) for that transaction. When you think about the millions of transactions that they process every year, that small amount could end up being pretty big – just ask the characters in the movie Office Space. For me, as the credit card holder, the slight difference from Visa’s currency exchange rate doesn’t matter because I always end up paying the correct amount and don’t have to worry about fractional cents.
In the end, the important thing to know is that Capital One really does just use the exact exchange rate posted by Visa. This is also supported by the nerd wallet study, which shows that while foreign transaction fees can vary among credit card companies, the exchange rates don’t. Now that you know exactly how Capital One does it, you are probably curious how Visa comes up with their rates and how they compare with other methods of currency exchange. These questions are tackled in the next post How does Visa Calculate its Currency Exchange Rate?
The Inquiring Investor 
I have a Discovery Card and a Capital One card that I frequently use in Mexico. I live most of the year in Mexico so that’s why I say frequently! Both cards have no foreign transaction fees.
Days after making a charge, I always check with the Visa exchange rate online and compare. What I have found consistently is that Discovery is usually to the penny and that Capital is most of the time a little over 1% higher! And Discovery lays out the break down of the conversion , online, in a much clearer fashion. With Capital it still beats paying 2-3% … but I have seen that over 1% factor quite often! I must say that I appreciate both cards ……..
To build on my previous post, I made a ATM debit withdrawal today in Acapulco for $5,024.00 pesos with Capital One. The exchange rate for visa online for today is 13.396600 per 1USD; which calculates that I should have been charged $375.02 USD. I checked online and I was charged $378.57 which works out to that 1% factor I had mentioned! The good thing is that Cap One reimburses you for ATM fees charged at other banks … so I will make up that 1% with what I charge Cap One for the ATM fee … and they have always paid the ATM reimbursement in a timely fashion. So all and all … it works for me and beats the hell out of most other banks especially HSBC which charges you a arm and a leg!
Hi Garry, Thanks for posting your this! It seems really odd that Capital 1 charges you a 1% mark up, especially since all of my conversions have been exactly correct. The only thing I can think of is that in your example you used your debit card to take out money: maybe Capital One has a 1% fee for ATM withdrawals? I will look into this. Also I would check to make sure that you are using the currency conversion rate for the date that the transaction is posted. Even though online it might say “June 25” if you click on the transaction details it will also give you a posting date which could be different. I got tripped up by this when I started my research – many of my transactions were posted a day later than they actually occurred. Let me know if you find anything out!
Nick … thanks for your reply! First … Capital One does not charge a ATM fee; and in fact they reimburse you for fees charged by other banks! And as I mentioned, Cap One does the reimbursement in a very timely fashion.
Secondly … I always make sure that the conversion and the transaction dates are correct since that’s what it’s all about.
With my Cap One charge Card and ATM withdrawals in Mexico … there consistently is that roughly 1% difference in their favor. And as I mentioned, I also use my Discovery Card in Mexico and do the same type of calculations … and Discovery is to the penny vs Visa on the given transaction date! If I didn’t have Discovery for a comparison, I wouldn’t be quite as certain.
I can’t explain what is happening … it’s just what I have observed over a few years. And I like my Cap One card and like using cards in general, so I’m not on any type of vendetta …. just very humble observations ……………
Thanks for the follow up Garry – It might be worth a call to Capital One to discuss your 1% mark up. When I called about my transaction and told them that their conversion was slightly off from the Visa exchange rate, they took it very seriously. The customer service representative went step by step with me: We navigated to the Visa exchange rate website together, then entered in the transaction information together (that was where I found out I was using the wrong date). My point is that they seem to really care about the “no transaction fee” promise, and I wouldn’t be surprised if they revised your statements once they realized that they screwed up. Just a thought!
Do you have Visa or Mastercard from Capital One?
Hi Max, I have a Visa from Capital One.
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Nick, this is one of the best breakdowns I have seen. Thank you very much for such detailed analysis of the process. I will be traveling Europe this summer and recently got the capital one venture card for expenditures. i will let both you guys know the outcome of my foreign charges.
Hi Jaime, thanks for posting, I’m so glad that you found this useful. Have a great trip in Europe and please do let us know if anything wacky happens with the foreign charges (I hope not!)
Good analysis. I’ve got Chase and Capital One. I’ll be comparing both when I go to Europe nex month, because I also wondered whether exchange rates had hidden inflation to account for not paying the 3% foreign exchange fee per transaction (which is why I switched from Citi to Capital One). If I find one is higher than the other for the same posting day, that will be card of choice…
Hi Mike – please let us know if you find any difference – I’d be curious to know!
I feel robbed by capital one. I got the venture card to avoid foreign transaction fees and found it would be cheaper to pay the 3%!!! For example, I charged 200 euros yesterday and what should be around $253, capital one charged me close to $320!!!!
Hi Angie – that stinks! The one time I thought I had an issue with the exchange rate, I called Capital One and they were more than happy to go through the exchange rate process. I have even read of cases where the exchange rate was corrected by Capital One when an error was pointed out by the customer. Seems like it would be worth a try in your case. Please write back and let us know how it goes, or send some more data so we can all learn about your transaction!
The variations in the exchange rates (what you are referring to as ‘Capital One Markup’) is due to real time fluctuations in exchange rates not reflected in the Visa Exchange Rates website. Exchange rates, like stocks, fluctuate constantly throughout the day. Visa’s site only allows you to see the exchange rate by date, not by time of that day.
When I make multiple foreign purchases on a given day, the exchange rates listed on my itemized statement are never the same between transactions on that day. On days where there are wild swings in exchange rates, the difference in rates can be a couple of percent between transactions (usually it’s much less than a one percent fluctuation range).
Interesting. Thanks for the comment. In the post I specifically mention that there is no Capital One Markup, because they use the Visa Exchange Rate which is set once each day and doesn’t fluctuate during the day. From everything I’ve researched there shouldn’t be significant changes in rates during the day on your credit card statement, unless the bank is rounding to the 6th decimal place which I also explained in the post. I’d be very curious to see your statement – and to know which currency you are buying in that has such large fluctuations!
@Nick: Very nice elaboration.
However, somehow I don’t get your rounding fuss: To me, that “Capital One” card issuer seems to perform nothing else than applying exactly the original rate they get suggested by VISA, rounding the end result to two digits of course, but then somewhat oddly stating some kind of “effective exchange rate” which has been rounded again. The issuer “Advanzia”, that offers MasterCards to customers in Luxembourg and Germany, does exactly the same in the bill statements which can be confusing since one might assume that there would have been several exchange rates throughout the day which is actually not the case.
To comfort you, neither in Germany the applied rates seem to be totally transparent, either. For instance, despite the fact that the issuer Advanzia claims to apply the rates 1:1 without any adjustments or markups whatsoever as suggested by MasterCard (Europe), I encountered slight differences in terms of the effective rate depending on the usage (direct card payment vs. ATM withdrawal) despite the same “posting date”. The difference is mostly 0,2-0,5% worse for withdrawals, however once I thought I discovered a hidden markup for ATM usage, I just got a slightly better rate now for a JPY-withdrawal this week which is not reflected by any published rates by MasterCard, hence very strange.
@joh
This argument is brought up only too often if something fishy is going on with exchange rates. That they would fluctuate all the time (what a surprise), that it would depend on the settlement date, etc.
When it comes to international bank transfers, some banks might fix rates even twice a day but in case of MC/VISA, there is definitely only ONE rate per pair for one specific day and none for weekends or holidays. Hence, all discrepancies for settlements on the same day have to result from rounding differences or something else, the card issuer did afterwards.
Furthermore and interestingly, at least in Germany, card issuers are actually not bound to apply the rates they get suggested by MC/VISA. For example, the bank “Comdirect” decided to change the rates to be applied from the suggestions of VISA to their own provided by Commerzbank some time ago, which is for the better and worse, depending on the currency pair.
Thanks for your comment! I love the comparison between US and German Cards.
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My observation: Using capital one venture, I made purchases in Poland and Ukraine and found that the effective exchange rate was about 3 percent higher/worse than what I could have gotten exchanging money in a standard exchange counter around town. Town exchange rates vary but in general, they are reasonably close outside of the city center and airports. I avoided using my credit card for this reason because it was effectively a 3 percent surcharge even without the fee. For a purchase I wanted to insure using the card’s insurance feature, I used the credit card.
Another side observation: The German and American airport exchange fees are simply obnoxious. About 30%. I would rather burn the money than hand it over to them. Unfortunately, I couldn’t get to a local Polish exchange in time. I’ll just save the currency for the next visit. I expect the Zloty will not be converted to the Euro anytime soon.
Mark – I completely agree on the airport exchange fees, avoid them at all costs!
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I realize this is an older thread, but some of the information contained is either out-of-date or incorrect and I hope that I can add to it!
There should not be that type of (BAD) rate variance between Capital One Venture credit card foreign exchange rate and the best rate you could receive from an exchange counter — UNLESS you chose “pay in your home currency” or Dynamic Currency Conversion. I have been tracking my conversion rates for more than 4 years. My records prove that credit cards like Capital One beat the street rate 99% of the time. You can see my bank statements at http://besttravelcreditcards.org This has become a pet project of mine because there is so much confusion about using credit card and debit cards internationally.
There is a lot of bad comments about Capital One here. I have to wonder if it is because of misunderstandings at the time of purchase; or perhaps a card was obtained that does not provide “no foreign exchange fees”. CapitalOne has been my goto card for many years now because of their lack of fees when using the card overseas.
Thanks for the great comment Tom, I checked out your link and it has a lot of great stuff on this topic so thanks for sharing. I agree, from all of my research it seems pretty clear that capital one and other “no foreign transaction fee” cards are the best way to exchange currency. It sounds like some people may have had some different experiences but its hard to verify without card statements.
Throughout this blog it would be helpful to realize that the following three types of transactions have different exchange rates and potential fees:
1) Making a purchase (of goods or services) using either a debit or credit card.
2) Getting cash from an ATM using a debit/ATM card.
3) Getting cash from an ATM using a credit card (cash advance).
Capital One is great for type 1. It is your best deal.
For types 2 & 3, Capital One is competitive but may not be the very best.
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I have been trading with capital one forex for more than a year. There is no any charge charged by them. I am one of the delighted clients, but i came to see lots of negative comments here.
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Great info! I realize this is an older post, but after reading all the comments, I have a hypothesis on why some people saw a mark-up. In some countries, it’s customery for the buyer to pay transaction fee to the payment processor (the company that the merchant uses.) Perhaps that explains constant markup for transactions in some countries but not the other. I’ve also been a Capital One credit card users for years in multiple countries and never experienced the markup some received. I’m wondering though whether CO switched back and forth on passing on the VISA assessment fee. This would explain the 1% difference some people see. https://moneymattersforglobetrotters.com/international-transactions-101-credit-card/
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