Credit card foreign transaction fees for car rental deposits

Do I have to pay a foreign transaction fee when I use my credit card to pay the deposit on a car rental outside of Switzerland? What other hidden costs should I look out for when using credit cards to cover car rental deposits?

Deposit practices vary between car rental companies, locations and individual branch offices.

Hold or charge?

Some rental car companies have your credit card issuer hold the relevant amount of credit, but do not actually charge that amount to your credit card.

However, many car rental agencies – including many agencies operated by big-name rental companies – actually charge the full deposit amount to your credit card. When you return the car and pay your bills to their satisfaction, they return the money to your issuer.

In some cases, deposits are only deducted for certain types or lengths of car rentals, while a hold is used for others (typically for cheaper rentals). The credit card you use can also make a difference because some agencies charge the deposit to credit cards from some networks and only hold it for cards using other networks.

Foreign transaction fees for charges

When a rental car company charges a deposit to your credit card in a foreign currency (in euros or U.S. dollars, for example), you are charged a foreign transaction fee on that transaction. Swiss credit cards charge a 1.5% foreign transaction fee. The minimum deposit charged by rental car agencies is typically around 200 Swiss francs, though this can be much higher in the case of expensive or long-term car rentals.

In the case of cheap car rentals, foreign transaction fees are not significant (1.5% of 200 francs is 3 francs). However, in the case of more expensive rentals, you may prefer to pay the deposit in cash if the agency insists on charging your credit card instead of placing a hold. Some agencies demand higher deposits when you pay in cash rather than by credit card, but you will get the full deposit refunded without losing money on foreign transaction fees.

Other hidden costs

The foreign currency exchange rate spread can add another significant cost to credit card transactions in foreign currencies (although wide spreads may apply to foreign currency exchanges in cash as well).

Another thing to consider is that it may take up to 30 days for the refund to be settled. Be prepared to front the money when you pay your credit card bill if the deposit is not refunded by your due date.

The biggest risk of having money tied up in a foreign currency deposit is presented by fluctuations in exchange rates.

Example: A car rental agency in Thailand were to charge a baht deposit equal to 300 Swiss francs for a car rental and the baht fell by 20% against the Swiss franc during the time needed for your refund to be processed, the amount refunded in Swiss francs would be 20% lower than the original amount charged to your card. Just 240 francs would be credited to your account, resulting in a 60-franc expense.

Credit card holds are better for your wallet

In every case, the best setup for you as a consumer is to rent cars from agencies which only put a hold on your credit card and do not actually place a charge to your account. This ensures that you avoid foreign transaction fees, exchange spreads, rate fluctuation losses and having to front money to cover deposits when you make your credit card payment.

Always ask the agency whether they place a hold on your credit or actually charge the deposit and refund it before you hand them your credit card information. Try to get written confirmation that they will only take a hold and not charge the deposit. That way you can dispute possible charges.

More on this topic:
11 Tips for Cheaper Car Rentals
How to use credit cards to save on car rentals
Interactive credit card comparison