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Foreign transaction fees explained: How much they can cost you and how to avoid them
When you’re traveling abroad, making a payment with the wrong card can be expensive.
If you use a credit card or debit card that charges a foreign transaction fee, you can expect to see an extra fee added to each of your non-U.S. purchases. And in some cases, the fee can be as high as 5% of the transaction amount.
Read on to learn how foreign transaction fees work and how to avoid them.
What is a foreign transaction fee?
A foreign transaction fee is a fee that some credit card and debit card issuers charge when you make purchases in other countries. You can also be charged this fee if you make a purchase in the U.S., but the vendor processes your payment in another country or currency.
Not all cards come with foreign transaction fees, but for those that do, the fee is usually 1% to 3%. This fee is used to cover a variety of costs related to making a foreign purchase, including taxes, shipping, and network fees.
Read more: 8 best bank account features for frequent travelers
How much do foreign transaction fees cost?
Foreign transaction fees are usually 1% to 3% of the transaction amount. So if you make a $500 purchase, the fee will likely run somewhere between $5 and $15.
With that said, each card issuer sets its own fees. So the only way to know exactly what your foreign transaction fee might be is to look at the details for each card.
Foreign transaction fees on credit cards vs. debit cards
There’s a chance your debit card has a lower foreign transaction fee than your credit cards. However, it’s important to remember that each card issuer is different, so you don’t want to make any assumptions about your card fees. To be sure, check the cardmember agreement for each of your accounts.
Even if your debit card has a lower fee, you may still want to avoid using it while abroad. Most credit cards have added protections like zero-fraud liability, which guarantees you’ll get your money back if someone makes an unauthorized purchase on your card, as long as you report it right away.
In addition to fraud protections, some credit card issuers also offer insurance coverage for certain travel-related purchases, such as flights and car rentals.
Read more: Credit card, debit card, or cash: What’s best for travel?
Foreign transaction fees vs. currency conversion fees
A foreign transaction fee is just one type of currency conversion fee. There are several other currency conversion fees you might encounter while traveling abroad, when you shop online with vendors who are located outside of the U.S. They include:
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Dynamic currency conversion (DCC): You might have to pay a DCC fee if you opt to make a transaction in U.S. dollars instead of the local currency. These fees can range anywhere from 1% to 12% of your transaction amount.
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Commission or service fee: Banks and currency exchange services can charge you a commission or service fee to convert your currency. Depending on the company, the fee might range anywhere from 1% to 8%.
Because of all the potential fees, it’s often cheaper to pay with local currency than with a credit or debit card. But if you do want to pay in cash, just make sure you do your research ahead of time to find the safest and most affordable places to exchange your currency.
Read more: Traveling internationally? How to order foreign currency ahead of time.
How to avoid foreign transaction fees
If you want to avoid unnecessary foreign transaction fees while traveling, here are a few ways you can do so.
Only bring your fee-free cards
You can avoid foreign transaction fees altogether if you exclusively use credit and debit cards that don’t have the fees. If you have a fee-free debit card, you can also avoid charges by withdrawing money from in-network ATMs.
You can find out if your debt and credit cards have foreign transaction fees by reading your cardmember agreements.
Apply for a card with no foreign transaction fee
If all your cards charge foreign transaction fees, you might want to apply for a credit card with no foreign transaction fees.
To start your search, try comparing travel-focused credit cards, since they have features built specifically for frequent travelers. In addition to having no foreign transaction fees, some also let you earn miles for flights, give you travel insurance, or provide complimentary access to airport lounges.
Pay with local currency
Carrying lots of cash is not ideal in some locations. However, it’s definitely one way to avoid foreign transaction fees. If you want to carry the local currency, you can visit your bank to make an exchange before your trip, or look for ATMs in your bank’s network when you’re abroad.
Another way to avoid fees is to pay in local currency instead of U.S. dollars when you’re swiping a card at checkout. When a vendor offers this option, it might be your instinct to pay in U.S. dollars. But you can often avoid an unnecessary conversion fee if you opt to pay with local currency instead.
