Everything You Need To Know About Foreign Transaction Fees
When you plan a trip out of the country, you factor in the cost of hotels, transportation, food, and the like when creating your budget. However, there’s an expense you may face when traveling that you probably haven’t considered. Every time you use your credit card outside the US, you may end up paying a foreign transaction fee.
What are foreign transaction fees? How can you tell whether or not a credit card charges them? How can you avoid them? For answers to these questions and more, read on!
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What Is A Foreign Transaction Fee?
Here’s what happens when your credit card has a foreign transaction fee. Whenever you make a purchase that’s processed outside the US, a percentage of your purchase — usually 3% — will be charged to you. This fee isn’t used to cover any extra costs associated with processing a transaction overseas — it’s just something credit card issuers charge you because they can.
When Do Foreign Transaction Fees Apply?
Naturally, a foreign transaction fee will apply when you make any kind of purchase while overseas. However, that’s not the only situation in which the fee will apply.
Even when you make a purchase online from your home within the US, you may face a foreign transaction fee. This can occur not only when you’re buying something from a company based outside the US, but also when you make a purchase where the transaction merely is routed through a non-US bank. You have no control over when this happens.
Hardly seems fair, does it?
What You Need To Know About Currency Conversion
Another thing to be aware of when traveling outside the US? Currency conversion fees. Just as you pay a currency conversion fee when withdrawing local cash at an ATM abroad, your payment processor charges about 1% when you use your card outside the US. This fee is then charged not to you, but to your credit card issuer. Your card issuer usually passes this fee on to you (though a few issuers, including Capital One, do not — they eat the fee instead).
These currency conversion fees may not appear as separate charges on your credit card statement, making them hard to spot. It can take some detective work to determine just how much currency conversion fees are costing you.
One more thing on the subject: When making a purchase overseas, you may be given the option to be charged in US dollars instead of the local currency. This is called Dynamic Currency Conversion (DCC), and unfortunately, it’s bad.
When you use DCC, the merchant is empowered to set the currency exchange rate, meaning they can (and will) set a higher rate than you’ll get through your credit card network. What’s more, doing this may not get you out of paying the foreign exchange fee if the transaction passes through a foreign bank.
When using your card outside the US, if you’re given the option to be charged for your transaction in USD instead of the local currency, don’t take them up on it. Pay in the local currency instead.
How To Tell If Your Credit Card Has A Foreign Transaction Fee
When shopping for a credit card, always check the Schumer box. The Schumer box (named for then-congressman Chuck Schumer, whose legislation mandated their use) appears when you search for information on a credit card’s rates and terms. It will disclose whether or not the credit card in question has a foreign transaction fee.
Best No FX Fee Credit Cards
For a look at the best credit cards on the market featuring no foreign transaction fees, check out our article on the subject or take a look at the cards below.
|Credit Card||Best For|
|Capital One Quicksilver Cash Rewards||Cash Back with No Annual Fee|
|Chase Ink Business Preferred||Business|
|Capital One QuicksilverOne Cash Rewards||Average Credit|
|Barclays Arrival Plus World Elite Mastercard||Travel Rewards|
|Chase Sapphire Preferred||Transferable Travel Rewards|
|The Platinum Card from American Express||Luxury Travel Benefits|
|Discover it Cash Back||Rotating 5% Cash Back Categories|
Foreign transaction fees are something we used to just accept as the price of making purchases outside the US. However, there has been an increasing awareness of the ways in which banks nickel-and-dime us with spurious charges. Accordingly, more credit card companies are offering cards that lack foreign transaction fees, and a few issuers (Capital One, Discover, and USAA) have eliminated foreign transaction fees for all their cards.
If you’re going to be using your card overseas with any frequency, or even if you make lots of online purchases that might be processed by a foreign bank, a good credit card without foreign transaction fees should serve you well. For more on the best credit cards for travel, check out these helpful links!