What are foreign transaction fees?

Alex Cohen

So you’re planning a trip overseas! You’ve got a whole checklist of stuff figured out - air travel, foreign accommodations, things to see and food to eat.

But, you may not have considered how much it will cost you to use your card during your travels. If you’re not careful, you can hit with fees that add up really quickly. And fees suck. Here’s what you need to know and how to avoid paying extra fees when traveling abroad.

Definitions

Foreign transaction (FX) fee - An extra charge on top of the purchase price for purchases made outside of the US - through a non US bank or in a currency other than the USD.

Currency conversion fee - A fee issued by your credit card network (Visa, Mastercard, etc) for converting the local currency of where you made a purchase to a USD

What are Foreign Transaction Fees?

If you’ve traveled overseas before, you’ve probably come across these foreign transaction fees either proactively or the hard way once landing back in the states and seeing a bunch of charges on your account.

It’s typically a 3% fee added onto your purchases when using your card overseas or at a retailer abroad. For example - if you bought something online from a merchant in the UK you could also get charged a foreign transaction fee. A $100 purchase quickly turns into $103, and those purchases throughout your trip add up quickly.

3% seems low at first sight, but take a look at this table to see how quickly it adds up:

Spend

FX Fee

Extra Fees

Total Spend

$1,000

3%

$30

$1,030

$2,000

3%

$60

$2,060

$3,000

3%

$90

$3,090

$4,000

3%

$120

$4,120

$5,000

3%

$150

$5,150

In order to determine what your credit card charges for foreign transaction fees, you’ll have to look at your credit card agreement. It will be listed under the fees section with the corresponding fee.

For the Chase Sapphire Agreement above, the foreign transaction fee is $0, but for a lot of cards it might look something like this:

Avoiding Foreign Transaction Fees:

The best way to avoid a foreign transaction fee is to apply for and use a credit card that doesn’t charge any fees for using that card abroad!

What’s a currency conversion fee?

Currency conversion fees commonly get confused with foreign exchange fees. The difference between the two is that the currency conversion fee is a surcharge that VISA, Mastercard or another network will charge you to actually make the conversion from the currency in the country you’re paying in to USD.

The two options you have for determining the cheapest way of paying for a foreign transaction is to:

  1. Request the merchant convert your purchase to USD at point of sale, in that case whatever network the merchant is using will process the conversion fee
  2. Check out your network’s site to see what current currency conversion rates are at.

You can learn more about dynamic currency conversion on Visa’s site here and see the most updated conversion rates depending on the country you’re visiting.

Unfortunately, there’s not a good way of avoiding currency conversion fees but they tend to be pretty low, at around 1% on average. The bank that shines here is Capital One - as they cover both foreign transaction fees and currency conversion fees on all of their cards!

What about using cash?

Cash is great! Especially when you’re visiting a country that’s still reluctant to take cards everywhere. Nothing is stopping you from using cash and it’s a wonderful backup plan in case your card isn’t accepted.

However, there are some pitfalls to using cash when traveling abroad. You won’t have the same fraud protection if someone steals your cash and you’ll still have to scramble for an ATM, pay a foreign exchange fee and fees from your banks to take out money abroad. But most importantly, you won't earn rewards! Remember - you still earn rewards on foreign purhcases but if you use cash you'll miss out on valuable points and miles!

To Recap

Make sure you understand all the fees that come along with using your credit cards abroad. If you’re not careful, your banks and the credit card networks can tack on fees onto your spending. Get a credit card that offers 0% foreign transaction fees so you can continue to spend how you do with no worry!

Safe travels!

About the Author

Alex Cohen

Alex is the founder of Birch and lives in San Francisco with his two dogs, Duncan and Miller, and his fiance, Sarah. Follow him on Twitter @anothercohen