Guide to foreign transaction fees

If you travel internationally, finding a credit card with low or no foreign transaction fees is crucial. But even if you never vacation outside the country, you could still get hit with these charges. Thanks to the global economy and the far-reaching internet, people can easily make online purchases in other currencies.

Understanding how foreign transactions fees work and when you might get charged is essential for anyone looking to reduce how much they spend on bank fees each year.

What is a foreign transaction fee?

Foreign transaction fees are charged by some credit cards whenever you make a purchase in another currency. Presumably, the fee is assessed to cover the card issuer’s cost to convert the price to your home currency and process the payment.

These fees can be assessed for in-person purchases made in another country as well as online purchases made on websites that charge a different currency.

How do you know if your card charges foreign transaction fees?

Even before applying for a credit card, you’ll be able to see whether it charges a foreign transaction fee and how much it is.

By law, credit card companies must include a fee disclosure table on any solicitation for its cards. That includes websites and online applications.

Look for a link with wording such as “pricing and fees” or “terms and conditions.” This link will typically open a new web browser window with a table outlining interest charges and fees. Foreign transaction fees will be listed in the “transaction fees” section of the table.

For an existing credit card, log into your online account to check your card information for fee details. If you can’t easily find the fee disclosure, call or chat with customer support to ask whether your card charges a foreign transaction fee and, if so, how much it costs.

 ➤  LEARN MORE:Common credit card fees and how to avoid them

How much are foreign transaction fees?

Foreign transaction fees are charged as a percentage of the purchase price. A fee of 3% is most common, but they can range anywhere from 1-5%.

This fee is typically assessed on the value of the purchase in your home currency. For instance, let’s say you spend €100, which is converted to roughly $110 based on the exchange rate as of this writing. In that case, a 3% transaction fee would be assessed on the $110, not the amount of euros.

While these percentages are representative of the fees charged by credit card issuers, most companies offer at least one card with no foreign transaction fees. That said, double-check the pricing terms before applying for a specific card.

What are the benefits of no-foreign-transaction-fee credit cards?

Quite simply, a no-foreign-transaction-fee credit card can save you money.

In addition to eliminating the foreign transaction fee itself, credit cards often provide more favorable currency exchange rates. In other words, your dollars will stretch further if you make foreign purchases on a no-foreign-transaction-fee card compared to taking cash and exchanging it at the airport.

Avoid these foreign transaction fee credit card mistakes

Sometimes people overlook the possibility of being charged foreign transaction fees and other times they may end up paying more in their attempt to avoid a fee. Make sure you don’t fall into these two traps.

Assuming purchases made in the U.S. aren’t subject to foreign transaction fees

As mentioned earlier, even online purchases can result in foreign transaction fees if they are made in another currency. Assume you will be charged a fee for any purchase on a website based in another country even if it gives you the option to pay in your own currency.

Opting to pay in your home currency

For some foreign purchases – both online and in-person – you may be given the option to conduct the transaction in your own currency. However, this will almost always cost you more than if you completed the purchase as a foreign transaction.

Known as dynamic currency conversion (DCC), this option lets a retailer convert the currency for you. However, in most cases, the currency exchange rate for DCC transactions is unfavorable – i.e. more expensive for you – than if you let your credit card company do the conversion. What’s more, selecting the DCC payment option is no guarantee you won’t still be charged a foreign transaction fee by your card issuer.

 ➤  LEARN MORE:Do credit cards offer good currency exchange rates?

What to do if you don’t have a no-foreign-transaction-fee credit card?

If you don’t have a no-foreign-transaction-fee credit card, it’s a good idea to apply for one. Even if you never travel internationally and only occasionally make purchases from overseas websites, it’s a handy tool to have in your wallet. What’s more, you can find cards with no annual fee so it can cost you nothing extra to carry one of these cards.

Top credit cards with no-foreign-transaction-fees

Here’s a look at some of our favorite no-foreign-transaction-fee credit cards:

Other frequently asked questions

Do credit cards automatically convert currency when traveling abroad?

Yes, any purchase made in a foreign currency will automatically be converted to your home currency by your credit card. This convenience – along with the card’s security features – is another reason to use a credit card for international purchases.

Do you need to tell your credit card company that you’re traveling abroad?

It is always advisable to tell your credit card company when you will be traveling, particularly out of the country. While not required, it helps ensure your foreign transactions aren’t flagged as potential fraud.

Should that happen, your card may be locked until you verify the transaction is legitimate. Rather than risk the hassle of declined transactions, let your card issuer know in advance where you’ll be traveling and how long you’ll be there.