Foreign transaction fees can break your budget. Whether you’re traveling overseas or shopping online, it’s important to know how foreign transaction fees work so you can avoid them altogether.
In this brief article, we’ll answer your most pressing questions so you can travel and shop with confidence.
How Foreign Transaction Fees Work
A foreign transaction fee is a surcharge that’s added to your bill whenever you purchase from a foreign merchant. These fees are incurred every time your purchases pass through a foreign bank or are completed in a currency other than the U.S. dollar (USD).
The typical foreign transaction fee is 3%, though some credit card issuers offer lower rates. In most cases, the foreign transaction fee will always be listed as a separate charge on your statement.
There are two components to a foreign transaction fee. The first charge comes from credit card networks like Visa and MasterCard, which typically add a 1% fee. The second charge derives from the issuer (Chase, Bank of America, etc.) and is usually a two percent fee.
How might this affect your expenses? Say you use your Visa credit card to pay for a $100 dinner in Madrid. Visa will charge you 1%, and your bank or credit union will add another 2% to the charge. With the total foreign transaction fee at 3%, the final cost of your dinner will be $103.
Over time, these fees can make quite a dent in your bottom line.
As a word of warning, foreign transaction fees don’t count towards rewards spending. So if your credit card features a cash back program, you will only get rewarded for the primary purchase and not the fees accompanying it.
Online Shopping & Foreign Transactions Fees
Foreign transaction fees can even affect you when you’re in the United States.
For example, if you make an online purchase from a merchant in Amsterdam, foreign transaction fees might still be added to your bill. Or, if you’re shopping on Amazon and make a purchase from an overseas vendor, foreign transaction fees could still be incurred (despite the price being listed in USD).
The same rules apply when booking international travel. Even if you use a domestic site like Expedia or Orbitz and you book your flight through a foreign airline, you could still be charged a foreign transaction fee.
How To Avoid Foreign Transaction Fees
Fortunately, foreign transaction fees can be avoided. Here are three great ways to do it.
1. Always Pay In The Local Currency
When you travel overseas, always choose to pay in the local currency. Though this may sound counterintuitive, it will save you money in the long run.
Many foreign merchants will give you the option to pay in USD. If you agree to this, however, the merchants will be able to set their own currency exchange rate before processing your payment. This process is called Dynamic Currency Conversion (DCC), and it’s widely known as a “scourge for international travelers.”
Paying in USD may seem more convenient, but it enriches the merchant at your expense. In fact, Dynamic Currency Conversion allows merchants to increase their profits by driving up the exchange rate to 7 percent.
2. Use a No-Fee Debit Card
While it isn’t safe to travel abroad with large sums of cash, you may want to consider using a no-fee foreign debit card. You’ll be able to withdraw money when you need it while eliminating foreign transaction fees.
Here are two of the best available no-fee offers:
- The Capital One 360 Checking Account offers no foreign transaction fees plus free international ATM withdrawal.
- The Schwab Bank High Yield Investor Checking Account offers no foreign transaction fees and unlimited ATM fee rebates worldwide. Click here to check out the Schwab Bank Visa Platinum Debit Card.
3. Switch To A No-Fee Credit Card
Before you make any major adjustments to your banking situation, take a moment to review your current credit cardmember agreement. Check the Terms & Conditions to see what you’ll be charged on foreign transactions.
If your credit card issuer does charge a foreign transaction fee, it may be time to consider switching to a new company. Fortunately, there is a growing market for no-fee credit cards.
Here are two of the most compelling providers:
- Chase offers multiple credit cards with no foreign transaction fees. Click here for the full list of available options.
- Capital One’s VentureOne rewards card has no foreign transaction fees (plus no annual fee). Click here to learn more.
Foreign transaction fees should have no part in your international travels. Just remember to always pay in the local currency and use a no-fee debit or credit card.
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