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What Is a Foreign Transaction Fee?

Foreign transaction fees are charged by banks and credit card companies on certain transactions that take place outside the U.S. They can apply when you use a debit or credit card in another country or if a foreign bank processes a payment.

But these fees don't necessarily need to eat into your travel budget—you can avoid them by using a card that doesn't charge a foreign transaction fee. Here's what you should know about these fees and what they may cost you.

How Do Foreign Transaction Fees Work?

Foreign transaction fees are small charges added on top of each of your foreign purchases, and generally range from 1% to 3% of a debit or credit card transaction. Card networks, such as Visa and Mastercard, may also charge currency conversion fees if you're making a purchase in a currency other than the U.S. dollar.

You might experience the following scenario while traveling in Europe: If you make a purchase in euros using a Visa credit card, Visa may convert the transaction, after charging a slight markup, say to $100. Then your card issuer may charge you an additional $3 based on a 3% foreign transaction fee.

Foreign transaction fees can apply when you're using your card outside the U.S., and when you're inside the U.S. but make a purchase in a foreign currency. It depends on whether a foreign bank processes the transaction.

The fees get added to your credit card balance or taken out of the bank account linked to your debit card. If your credit card offers rewards, you won't necessarily earn rewards on the amount of the fee.

How to Avoid Foreign Transaction Fees

There are two main ways to avoid foreign transaction fees when you're traveling abroad or making purchases in a foreign currency.

  • Use a card that doesn't charge a fee. Using credit cards that don't charge foreign transaction fees is one of the easiest ways to avoid them. There are many cards available, including travel rewards credit cards. You can also find debit cards without the fee, although they may not offer rewards.
  • Use local cash for purchases. You could also use the local currency and pay in cash to avoid fees while you're abroad. Extra fees may still result, however, if you withdraw cash from a foreign ATM, and money exchangers may charge fees or give you a poor exchange rate. You also may not be comfortable carrying large amounts of cash.

Additional Fees to Look Out For

Whether you're abroad or making purchases in foreign currencies online, staying on the lookout for the following fees can help you save some cash.

  • Dynamic currency conversion fees: You may find foreign merchants use dynamic currency conversion (DCC) and let you choose between paying with local currency or with U.S. It's generally best to pay with the local currency for two reasons: There may be a big markup on the conversion rate with DCC, and you may still have to pay a foreign transaction fee if the transaction gets processed by a foreign financial institution.
  • Foreign ATM withdrawal fees: Some banks may charge an additional or higher fee to withdraw cash from an ATM outside the U.S., plus a conversion fee on your cash withdrawals. To avoid these, look for banks that don't charge any foreign withdrawal and conversions fee (or refund them if they are charged). Alternatively, you may be able to find a partner bank with free ATMs in the country where you're traveling.

Again, these fees can be fairly easy to avoid, but you'll need to know what to look for and you may need to plan ahead by opening a new bank account.

Find a Credit Card Without a Foreign Transaction Fee

While foreign transaction fees are common on credit cards, there are also many cards that don't charge them. These fee-free cards include rewards cards that earn you cash back, points or miles cards, and may not have annual fees either. Compare your options and offers for free using Experian CreditMatchTM.