Are you planning a trip abroad and wondering what the best way is to manage your finances while you’re away? One of the things you should be aware of is foreign transaction fees. In this blog post, we’ll go over everything you need to know about foreign transaction fees and how to avoid them.
What is a Foreign Transaction Fee?
A foreign transaction fee is a fee charged by banks and credit card companies when you make a purchase in a foreign currency. The fee is usually a percentage of the purchase amount and is charged in addition to any other fees associated with the purchase.
When you make a purchase in a foreign currency, the credit card issuer or bank will convert the currency into US dollars using an exchange rate. The exchange rate used is usually different than the rate available on the open market, and the difference is the foreign transaction fee.
For example, if you purchase an item in a foreign currency and the exchange rate used by the credit card issuer is 1 USD = 1.2 EUR, and the open market rate is 1 USD = 1.25 EUR, then the difference would be the foreign transaction fee.
In addition to the foreign transaction fee, there may also be other fees associated with the purchase such as currency conversion fees, service fees, and foreign ATM fees.
The foreign transaction fee is divided into two parts:
#1. Network fee (or currency conversion fee):
The credit card network charges this portion of the FX fee (Visa or Mastercard, for example). Both Visa and Mastercard levy a 1% fee. This fee is applied to all transactions, regardless of credit card type.
#2. Bank fee issuance:
Depending on the credit card you use — Citibank, Chase, or Barclays, for example — some issuers charge a fee on top of the network fee, usually approximately 2%. Other issuers do not add their own and will even absorb the network fee, so you will not have to pay anything.
Despite the fact that the fee is divided into two portions, foreign transaction fees are normally levied as a single charge to your credit card account per purchase. Card companies decide whether and how to charge these fees.
How Do I Know if I Have Foreign Transaction Fees?
The best way to know if you have foreign transaction fees is to check your credit card statement or bank account for any charges labeled “foreign transaction fee” or “international transaction fee.” These fees are usually charged as a percentage of the purchase amount, so if you see a small fee added to your purchase total, it’s likely a foreign transaction fee.
It’s also a good idea to check the terms and conditions of your credit card or bank account, as some cards and accounts may have foreign transaction fees without explicitly stating them.
What are the Different Types of Foreign Transaction Fees?
There are two types of foreign transaction fees: merchant fees and currency conversion fees.
Merchant fees are fees charged by the merchant for processing a foreign transaction. These fees are usually a percentage of the purchase amount and vary from merchant to merchant.
Currency conversion fees are fees charged by the credit card issuer or bank for converting foreign currency into US dollars. These fees are usually a percentage of the purchase amount and are in addition to any other fees associated with the purchase.
Foreign Transaction Fees By Credit Card Issuer
Foreign transaction costs vary depending on the card provider. This rate can even differ for different card products issued by the same company. The table below shows the typical FX fee by the issuer, as well as a selection of cards issued by that bank that do not charge FX fees. Every major bank has at least one card that does not charge foreign transaction fees.
| Issuer | Typical FX Fee | No-Foreign-Transaction-Fee Credit Cards (samples) |
|---|---|---|
| American Express | 2.70% | The Platinum Card® from American Express Delta SkyMiles® Reserve American Express Card Delta SkyMiles® Platinum American Express Card Hilton Honors Aspire Card from American Express Hilton Honors American Express Surpass® Card Marriott Bonvoy Brilliant® American Express® Card |
| Bank of America | 3% | Bank of America® Travel Rewards credit card Bank of America® Premium Rewards® credit card Alaska Airlines Visa® credit card |
| Barclays | 3% | Hawaiian Airlines® Business MasterCard® AAdvantage® Aviator® Red World Elite Mastercard® AAdvantage® Aviator™ Silver World Elite Mastercard® JetBlue Business Card |
| Capital One | 0% | All Cards |
| Chase | 3% | Chase Sapphire Reserve® Card Chase Sapphire Preferred® Card United℠ Explorer Card United Club℠ Infinite Card British Airways Visa Signature® Card Southwest Rapid Rewards® Premier Credit Card IHG® Rewards Premier Credit Card World of Hyatt Credit Card Marriott Bonvoy Boundless® Credit Card |
| Citibank | 3% | Citi Premier® Card Citi Prestige® Credit Card Citi® / AAdvantage® Executive World Elite Mastercard® Citi® / AAdvantage® Platinum Select® World Elite Mastercard® Expedia®+ Voyager Card from Citi Costco Anywhere Visa® Card by Citi CitiBusiness®/ AAdvantage® Platinum Select® Mastercard® |
| US Bank | Up to 3% | U.S. Bank Altitude Reserve |
How To Avoid Foreign Transaction Fees
There are several alternatives available to assist you to avoid foreign transaction costs when traveling abroad. Many banks provide credit cards with no foreign transaction costs, while a few of institutions provide checking accounts with no foreign transaction fees for debit card cash withdrawals overseas.
New debit or credit card applications can take up to a week to be accepted, and waiting for a new card to arrive in the mail can take up to two weeks, so you should think about these choices well in advance of your next large trip.
#1. Apply for a Credit Card That Doesn’t Charge Foreign Transaction Fees
Many credit cards allow cardholders to swipe without paying a foreign transaction fee. These cards provide the most convenient and secure method of making international purchases.
Credit cards that do not charge foreign transaction fees are handy both overseas and at home while buying on an international website. Many cards even include incentives that can be used to offset the cost of future trips or regular purchases.
Perhaps the most significant benefit of using a credit card with no foreign transaction fees while traveling is that, even if credit card information is copied or stolen, it is quite simple to report fraud and rapidly recover stolen cash from a credit card issuer.
The Chase Sapphire Preferred® Card is one of the most popular travel rewards cards. The Sapphire Preferred has no foreign transaction fees and earns 5 points for every dollar spent on travel purchased through Chase Ultimate Rewards®, 3 points for every dollar spent on dining, select streaming services, and online grocery purchases (excluding Walmart, Target, and wholesale clubs), 2 points for every dollar spent on all other travel purchases, and 1 point for every dollar spent on all other purchases. It has an annual fee of $95. This card’s benefits can be redeemed for flights, restaurants, hotels, and other items.
#2. Get a Foreign Transaction Fee-Free Checking Account or Debit Card
A debit card with no overseas fees combined with a matching credit card is an excellent choice for a frequent traveler. A debit card that does not impose foreign transaction fees is handy even on its own for making everyday transactions and withdrawing money from ATMs. Due to high cash advance costs, travelers should never use a credit card to withdraw cash from an ATM.
The Charles Schwab High Yield Investor Checking account is a popular choice for travelers. Schwab debit cardholders pay no foreign transaction costs and receive monthly ATM fee reimbursements.
Although using a debit card is handy, it provides less protection against fraud than credit cards. When debit card information is stolen, it can take much longer to collect stolen monies from the issuing bank, and some account holders’ luck may run out completely. This can offer considerable concerns when overseas for people traveling on a budget or with low available funds. Always report fraud immediately and take all processes required by the bank to receive monies as soon as possible.
#3. Use International ATMs Only After Paying Checking Fees
Regardless of whether they have a credit or debit card, travelers should double-check fees before using an international ATM. Fees to consider include overseas ATM fees, currency conversion fees, and fees charged by the home bank. These fees can be avoided by selecting a bank account that does not impose fees and reimburses out-of-network ATM fees, as well as withdrawing local currency from ATMs. Account holders can also inquire with their home bank about the availability of partner branches or in-network ATMs in the destination country or country.
Travelers who do not have a fee-reimbursement account may wish to consider making fewer ATM trips and withdrawing more cash each time to reduce expenses. Of course, carrying more cash increases the risk.
#4. Before Leaving the U.S., exchange cash.
Paying for a vacation in cash is one approach to avoid ATM or transaction costs. Before a big journey, travelers can exchange US dollars for most major currencies at a bank, credit union, or currency exchange store. This may be a smart idea if you know exactly how much you’ll spend on food and souvenirs. When compared to exchanging money at an airport upon arrival, banks and credit unions often have the lowest exchange rates or costs. We recommend exchanging currencies as far away from an airport as possible—rates tend to worsen as you approach closer to a big transit hub.
Keep in mind the dangers of carrying significant amounts of cash while traveling. There is a bigger possibility of losing or having the money taken. When picking this choice, exercise extra caution and ensure that you have a backup option, such as a backup credit card, so that you don’t find yourself without a way to buy meals or transportation tickets. When credit cards are taken, fraud protection advantages may restrict a cardholder’s liability to zero dollars, but when cash is stolen, there is sometimes no recourse.
Which Banks Have No Foreign Transaction Fee?
There are a number of banks and credit card companies that offer cards with no foreign transaction fees. Some of the most popular banks and credit card companies that offer cards with no foreign transaction fee are:
- Capital One
- Chase
- Citi
- Discover
- Barclaycard
- Bank of America
- Wells Fargo
- USAA
It’s important to note that some of these cards may also have other fees associated with them, such as annual fees, so make sure to check the terms and conditions of the card before applying for it.
Do All Credit Cards Charge Foreign Transaction Fees?
No, not all credit cards charge foreign transaction fees. As mentioned above, there are a number of credit cards that do not charge foreign transaction fees, so make sure to check the terms and conditions of the card before applying.
Are There Alternatives to Paying a Foreign Transaction Fee?
Yes, there are a few alternatives to paying a foreign transaction fee. One option is to use a pre-paid travel card, which can be loaded with funds before your trip and usually has lower fees than traditional credit cards and bank accounts.
Another option is to use a local currency or debit card. These cards can be used at foreign ATMs and merchants and usually do not charge any fees. However, it’s important to check the terms and conditions of the card before using it, as some cards may charge fees for using them in certain countries.
Why Am I Being Charged an International Transaction Fee?
An international transaction fee is a fee charged by the credit card issuer or bank for processing a transaction in a foreign currency. This fee is usually a percentage of the purchase amount and is in addition to any other fees associated with the purchase.
The international transaction fee is charged to cover the cost of converting the foreign currency into US dollars. The exchange rate used by the credit card issuer is usually different than the rate available on the open market, and the difference is the international transaction fee.
What Are the Benefits of Credit Cards With No Foreign Transaction Fee?
Credit cards with no foreign transaction fee can be a great option for travelers who want to save money on their purchases abroad. These cards usually have lower fees than traditional credit cards, so you can save money on purchases in foreign currencies.
In addition, these cards can also be used to make purchases in the US, so you don’t have to worry about being charged a foreign transaction fee when you’re shopping domestically.
Conclusion
Foreign transaction fees can be a hassle for travelers, but there are ways to avoid them. By using a credit card or bank account that does not charge foreign transaction fees, using a pre-paid travel card, or using a local currency or debit card, you can save money on purchases abroad.
If you’re planning a trip abroad, make sure to research the best way to manage your finances before you go. Understanding foreign transaction fees and how to avoid them can help you save money and enjoy your trip without worrying about fees.
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