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Foreign transaction fees are charges that credit card issuers, banks and other financial institutions impose when you use an electronic payment card to make a purchase in a foreign country or to buy goods and services in another currency. You can incur these fees whether you're using a debit card or a credit card.
While foreign transaction fees on debit cards are becoming more rare, they can drive up your travel budget if your bank charges them. Checking with your bank to see if it charges transaction fees can be helpful, especially if you plan on traveling abroad soon.
Here's what you need to know about foreign transaction fees on debit cards, including their costs and how to avoid them.
What Are Foreign Transaction Fees on Debit Cards?
You may receive a foreign transaction fee when you use your debit card for point-of-sale purchases, ATM withdrawals outside the United States or when you make purchases in a foreign currency.
Banks and credit card companies charge foreign transaction fees to help them cover the costs of converting currencies and processing international transactions. The fee may include charges from your card network, including Visa and Mastercard, and your bank.
Many banks don't charge foreign transaction fees on debit card transactions, so it may be worth switching banks if your current bank imposes such fees. Otherwise, the amount you pay for goods and services may be higher than their price tags. These fees can add up quickly when you're abroad or shopping online with foreign merchants, including when you're booking your hotel, transportation, tours and activities.
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How Much Are Foreign Transaction Fees?
Foreign transaction fees vary but typically range from 1% to 3% of the transaction price. That means you could pay up to an additional 3% on hotels, food, entertainment and transportation while visiting another country. For example, if you use your debit card to spend $5,000 on a vacation abroad, you could owe an extra $150 in foreign exchange fees.
On top of foreign transaction fees, you may incur currency conversion fees from your bank, payment networks, ATM operators or merchants to convert transactions into U.S. dollars. This process is called dynamic currency conversion, or DCC. Currency conversion fees are often 1% of the purchase price, and both fees may be combined and listed on your statement as a foreign transaction fee.
For example, if you're buying clothes while visiting Portugal, the merchant may offer to use DCC and show you the price in U.S. dollars, not euros. If you agree, the merchant will use the conversion rate provided by its DCC service provider. If you refuse, your payment network, such as Visa or Mastercard, will convert the currency, and you'll see the conversion on your statement in U.S. dollars.
Visa and Mastercard offer exchange rate calculators to give you an idea of what you're being charged upfront. You can also download a currency conversion app to use while you travel.
How to Avoid Foreign Transaction Fees on Debit Cards
Before you venture abroad or pay for online transactions with foreign merchants, make sure your debit card doesn't charge foreign transaction fees. If it does, consider the following tactics to avoid incurring a foreign transaction fee.
Apply for a Credit Card That Doesn't Charge Foreign Transaction Fees
Many credit cards, including most travel cards, don't charge foreign transaction fees.
Travel credit cards also often provide a wide variety of valuable benefits and perks, such as bonus points, access to airport lounges, and discounts on TSA PreCheck. Using a card comparison tool such as Experian CreditMatch™ can help you discover cards that you may qualify for and easily compare their features.
Exchange Currency Before You Leave Home
Another way to avoid transaction fees is to pay for your purchases in cash when you travel internationally. However, exchanging your U.S. dollars into the local currency while abroad can be costly. Your best bet may be to visit your bank in the U.S. before you leave and exchange your U.S. dollars for the local currency of your travel destination. Many banks and financial institutions have a low foreign exchange fee or don't charge a fee, which could save you considerably.
Keep in mind, carrying large amounts of cash can be risky, so you may only want to have a small amount of spending money when you arrive. That way, you can avoid potentially costly airport kiosks or international ATMs to get cash upon arrival.
Switch to a Checking Account Without Foreign Transaction Fees
If your bank charges foreign transaction fees on debit cards, consider opening a checking account with a bank that doesn't charge the fee, especially if you travel often. A fee-free debit card could come in handy abroad, especially if a merchant doesn't accept credit cards or charges extra to use them.
For example, the Schwab Bank High Yield Investor Checking account offers unlimited ATM fee reimbursements domestically and internationally. The account doesn't charge foreign transaction fees or monthly fees. It also offers a 0.45% annual percentage yield (APY) which is unique for a no-fee checking account.
If you don't want to switch banks or add another bank account, ask your bank if they have branch locations, partner banks or network ATMs where you're traveling. If so, you may be able to access cash while abroad without incurring a fee.
Find the Right Card With No Transaction Fees
Thankfully, foreign transaction fees are less common with debit cards than they used to be. Similarly, most travel credit cards don't charge you these types of fees. With that in mind, it might be helpful to check your debit and credit cards' terms and conditions to determine if you'll incur foreign transaction fees while you're away. That way, you can plan for how you'll pay for transactions or withdraw cash while abroad.
You may avoid foreign transaction fees and enjoy other travel perks and protections by opening a new credit card account. Before applying, consider the card's minimum credit score requirements, annual fees, rewards and other factors. Experian CreditMatch™ can help you find the best credit cards that meet your objectives.