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What You Should Know About Foreign Transaction Fees

Have you considered how much it will cost to use credit card while traveling abroad? Here’s what you need to know about foreign transaction fees – what they are and how to avoid them.

By Megan Doyle | American Express Credit Intel Freelance Contributor

5 Min Read | November 06, 2019 in Cards

 

At-A-Glance

Foreign transaction fees are extra charges on credit card purchases made in foreign currencies.

Not all credit cards charge foreign transaction fees, so sometimes they’re a surprise for travelers.

You can avoid transaction fees in a few ways, like using cash or no-foreign-transaction-fee credit cards.

Few things can spoil your travels like a canceled flight, lost luggage, or a misplaced passport. But what about coming home to an impossibly high credit card bill? Sure, credit cards are a convenient way to pay for goods and services when you’re traveling abroad. But if your credit card has foreign transaction fees that you don’t know about, each purchase made in a foreign currency will come with an extra fee—potentially adding hundreds of dollars to your monthly bill.

 

What is a Foreign Transaction Fee?

A foreign transaction fee is an extra charge on your credit card bill for each time you make a purchase in a foreign currency. You’ll also incur foreign transaction fees if the transaction is processed through a foreign bank. This is important to know because it means you don’t have to be in another country, or even pay in a foreign currency, to end up owing foreign transaction fees. For example, if you make an online purchase from a foreign retailer, you can be charged.


Most credit cards with foreign transaction fees charge 3 percent of the transaction, but some may charge less.1 This means you’ll be charged an additional $3 for every $100 you spend in a foreign currency. Three dollars may not seem like a lot, but if you’re planning to spend a lot of time abroad or make a lot of online purchases from foreign merchants, fees can add up quickly. And the added fees don’t count toward rewards like points or cash-back bonuses.

 

Why it’s Important to Understand Foreign Transaction Fees

If you or someone you know will be traveling abroad or even plan to make online purchases from a foreign retailer, understanding foreign transaction fees can help prevent excess charges and save money.

First, determine whether or not your card provider charges foreign transaction fees. This information appears in your payment card’s terms and conditions. If you’ve already made purchases in a foreign currency and aren’t sure if your card charges foreign transaction fees, they’ll show up on your card statement as a fee separate from the initial purchase. If no fees show up, you may be in luck, as some cards won’t charge foreign transaction fees under any circumstances.2

Since you may pay foreign transaction fees when making online purchases, too, experts suggest checking the “About” section of the merchant’s website to see where they’re based.3 Even if your online purchase is made in U.S. dollars, if the merchant is based in another country, the funds might be routed through a foreign bank. This means you’ll still have to pay a foreign transaction fee—even if you’re paying in your domestic currency.4

 

Can Foreign Transaction Fees Be Avoided?

If your current credit card charges you for foreign transaction fees, it’s likely that there’s no getting out of it. The only way to avoid them is to use a no-transaction-fee payment card. If you plan to make a lot of foreign purchases in the near future, it might help to apply for a new payment card or open an account with no foreign transaction fees.5 This way, you’ll be able to save money in the long run. In either case, it may pay to inform your financial institution of your near-term foreign purchase plans—unexpected foreign purchases can raise suspicion, prompting an account freeze for your safety.

Otherwise, you can avoid foreign transaction fees by using cash and making a currency exchange before traveling. Some experts suggest estimating how much cash you’ll need for your trip and converting the currency at your home bank, because your financial institution will likely provide a more favorable exchange rate than a currency exchange kiosk.6 Taking out cash in advance can also help you save money by avoiding out-of-network ATM withdrawal fees.

 

Be Wary of Dynamic Currency Conversion

Some foreign vendors might offer a way for you to pay in your own currency with a process called “dynamic currency conversion.” This may sound convenient, especially because it means you won’t have to do the mental math of converting thousands of yen, rupees, or Mexican pesos to U.S. dollars. But since dynamic currency conversion payments are usually processed through foreign banks, you’ll likely still have to pay a foreign transaction fee—even if you’re paying in your domestic currency.

What’s more, dynamic currency conversion may not be worth the convenience even if you have a credit card with no foreign transaction fees. Because merchants get to choose the foreign exchange conversion rate, many may use it to improve profits, making the transaction cost higher than if it were done in the local currency.

 

The Takeaway

If you’re not prepared before traveling or making purchases from online foreign merchants, the global convenience of credit cards can come at a surprising foreign-transaction-fee cost. However, foreign transaction fees can be avoided by various means, including paying in cash or using a credit card with no foreign transaction fees.

Megan Doyle

Megan Doyle a business technology writer and researcher whose work focuses on financial services and cross-cultural diversity and inclusion.

 

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

The material made available for you on this website, Credit Intel, is for informational purposes only and is not intended to provide legal, tax or finanical advice. If you have questions, please consult your own professional legal, tax and financial advisors.