At AmazingMiles, we’re always looking to help travelers avoid unnecessary fees, and one fee many encounter is the foreign transaction fee. This is a charge you might notice when using certain credit cards abroad or even when shopping on non-U.S. websites.
Let’s dive into what foreign transaction fees are, how they work, and how you can avoid them to save on your next trip.
What Is a Foreign Transaction Fee?
Foreign transaction fees are charges applied when you make purchases that go through a non-U.S. bank. Essentially, if you’re traveling abroad or shopping online on a foreign-based website, the purchase is processed in a foreign currency and then converted into U.S. dollars. Your bank or credit card issuer may pass on the cost of that currency conversion to you.
How Much Are Foreign Transaction Fees?
Foreign transaction fees typically hover around 3% of the total purchase. This fee is often a combination of two charges:
- 1% from Visa or Mastercard for processing the purchase.
- 1-2% added by your credit card issuer as an additional charge.
While 3% might not seem like much, these fees can add up quickly, especially if you’re traveling and making frequent purchases.
Common Foreign Transaction Fees by Card Issuer
Here’s a breakdown of foreign transaction fees by some major U.S. credit card issuers:
- American Express: 2.7%
- Bank of America: 3%
- Barclays: 2.99%
- Capital One: None
- Chase: 3%
- Citi: 3%
- Discover: None
- U.S. Bank: 3%
- Wells Fargo: 3%
Which Cards Have No Foreign Transaction Fees?
Not all credit cards charge foreign transaction fees. Many travel credit cards, especially those that offer travel-related rewards, don’t include these fees. Capital One and Discover, for instance, have no foreign transaction fees across all their card offerings.
Before you travel, check your card’s terms and conditions to see if you’ll be charged for purchases abroad. Issuers are required to disclose all fees, and the foreign transaction fee can often be found in the card’s fees section.
Foreign Transaction Fees vs. ATM Fees
When traveling abroad, it’s important to differentiate between foreign transaction fees and ATM fees. While foreign transaction fees apply to purchases made with your card, ATM fees are charged when you withdraw cash at a foreign ATM.
Foreign ATM fees can include:
- A flat fee from your bank for using an ATM outside its network (usually around $5).
- Foreign currency conversion fees that are similar to foreign transaction fees (typically around 3%).
- ATM owner fees added by the bank that operates the ATM you use.
While it’s generally a good idea to use a credit card for purchases to avoid some of these fees, cash is still needed in many parts of the world. Be sure to plan for these extra costs if you need to make an ATM withdrawal abroad.
How to Avoid Foreign Transaction Fees
Luckily, there are several strategies to help you avoid these fees altogether:
1. Use a Card with No Foreign Transaction Fees
The simplest way to avoid foreign transaction fees is by using a card that doesn’t charge them. Many travel-focused credit cards waive these fees, making them ideal for international travel.
2. Avoid Dynamic Currency Conversion
When using your card abroad, you might be asked if you’d like to pay in the local currency or U.S. dollars. Always choose the local currency. Paying in U.S. dollars allows the bank to use dynamic currency conversion, which often includes poor exchange rates.
3. Pay with Cash
You can also avoid foreign transaction fees by paying in cash. However, keep in mind that using ATMs abroad can come with additional costs, and you won’t earn rewards points for cash purchases.
Final Thoughts
Foreign transaction fees are a hidden cost that can add up, especially for frequent travelers. By understanding how these fees work and using strategies like choosing the right credit card and avoiding dynamic currency conversion, you can minimize extra charges and keep more money in your pocket. Always check the fees associated with your credit card and plan accordingly to ensure your travels are as cost-effective as possible.
