The Charles Schwab bank ATM card and foreign currency withdrawals—from Facebook

Copyright 2013 John T. Reed

A reader said Charles Schwab bank offers an ATM card that charges only .25% for currency conversion when you use it in an ATM in a foreign country that spits out foreign currency. My USAA ATM card charged me 1% for each ATM withdrawal in Australia and New Zealand in March. I just visited my local Charles Schwab brokerage. They charge NOTHING for use of their ATM card in a foreign currency ATM. Zero. Zilch. Nada, not .25%.

There is no minimum balance to have the necessary checking account, although you are not going to get any cash—foreign or US—out of a foreign ATM until you put some USD into the Schwab account, are you? This is a bank. Your checking account at Charles Schwab is FDIC-insured up to $250,000.
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Also regarding Schwab, if you have at least of $500,000 there—all types of accounts like IRAs combined—you get an unlimited number of Swift wires per year. I like that cost, but SWIFT wires are not very swift. They take something like 3 to 6 days to arrive.
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Is this a big deal? Nope. On a $1,000 ATM withdrawal in a country that uses another currency, various banks charge from $10 to $40. But since there is no minimum balance or fee for the Schwab account, why not get the card , attach it to your passport with a paper clip, and deposit the amount you expect to withdraw before you leave on your overseas trip? I now have two things attached to my passport: my GOES/Nexus card and my AAA international drivers permit. I will probably add a Schwab card—and treat myself to a couple nice meals in Canada using the savings from the Schwab ATM card.

Here is a response:
Christian Green: I obtained the .25% figure from an average of about 50 transactions where I "back-calculated" the fee from how much was deducted from the card.

As a personal example: I used my Charles Schwab card on November 9 to withdrawl 7500 Russia roubles. The exchange rate from Yahoo finance at the time was 31.5620. Therefore, I expected to be debted 237.63. I was actually debuted 238.34. Therefore, I paid 0.30% more than I expected.

It's true that Schwab isn't charging an EXPLICIT fee, but there is a small fee in the form of a very mild markup on the exchange rate. (Reed note: My Schwab guy seemd to think that was not true. Ask Schwab yourself if it matters.)

It's quite possible that what I'm really paying is the bid/ask spread on large forex exchanges, and they're just passing the cost onto me. But it's hard for me to believe that a bank has such a large spread since forex exchanges have so much liquidity.

To test that theory, for a short time I opened a demo account at a large forex broker and used the bid prices from that instead of from Yahoo Finance. (I noted that the bid/ask spread was only 0.05%, and that Schwab probably gets a better rate than some random guy on the street like me.) The "exchange rate" was slightly less but I have less data.

I also found that there was a large amount of "noise" in my data, and in a few cases even calculated a negative "exchange rate fee", which is why I averaged lots of transactions.

I contend that the low-cost banks/brokers I cited (at least the one I mostly use, Fidelity) are in fact adding a very small but nonzero markup somewhere in the range of 0.20% to 0.25%.

However, I have no complaint, it's reasonable. It's even a better situation than I expected before I left the United States.

On the topic of SWIFT, I entirely agree. The wire transfers I did took days. It's really shocking to me that ACH transfers within the U.S. take 2-3 days, and international SWIFT wire transfers (for me) have usually taken about 3 days. (When I complained about it to Charles Schwab, the guy I spoke to said that a few days was normal and he'd seen a few that took weeks.)

The banking industry is ripe for some kind of disruption. Do these people not know what year it is? They're stuck in 1982. (Not to knock on 1982: it was a better era.)

And my response:

John T. Reed: Good stuff, Christian. I know you said the .25% was an average. I printed out what you said and took it with me to see Schwab and showed it to them. I also called State Farm Bank the day before. They said they vaguely thought they had a low forex ATM fee but they said it was set by Visa, not them, and they could find anyone to say how much it was. I said it is surely set by agreement between Visa and State Farm Bank, not carte blanche to Visa, but whatever…

I agree that whatever the precise deal at Schwab, it appears to be among the best if not THE best. As for disruption, see the Bank of Montreal auto cash system I wrote about in another recent Facebook post. It is cheaper and seems to be a little faster.