What Is a Foreign Transaction Fee on Your Credit Card?

What Is a Foreign Transaction Fee on Your Credit Card? article image.

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A credit card foreign transaction fee is a fee that you may have to pay when you use a credit card while abroad or when making purchases online in a foreign currency. These fees can quickly add up, especially for frequent travelers. However, many credit cards don't charge foreign transaction fees. Here's what you need to know.

How Do Foreign Transaction Fees Work?

Foreign transaction fees may be added to credit card transactions when:

  • You use the card for a purchase or cash advance outside the U.S.
  • You use the card to purchase products or services in a foreign currency.

The fee might go by another name, such as foreign purchase transaction fee or foreign currency conversion fee. The fee amount can also vary: Some cards don't charge the fee at all, while others may charge 2% to 3% of each transaction amount. Often, the fee is charged after the transaction is converted into U.S. dollars (USD).

In addition to card-based foreign transaction fees, you may pay a markup on the currency conversion rate. Even cards that don't charge a foreign transaction fee may include the exchange rate markup, although the amount can vary depending on the credit card network and currencies. Visa and Mastercard have online calculators you can use to check their current exchange rates and fees.

Do All Credit Cards Have Foreign Transaction Fees?

There are many credit cards that don't have foreign transaction fees. Often, credit card companies will offer some cards with the fee and others without it. A few credit card issuers, such as Capital One, don't have foreign transaction fees on any of their credit cards.

As part of their benefits, travel credit cards generally don't charge foreign transaction fees. But the fee may be more common on other credit cards, such as balance transfer and cash back rewards cards.

Other types of cards, such as prepaid cards and debit cards, may also charge foreign transaction fees.

How to Avoid Foreign Transaction Fees

There are two common ways to avoid paying foreign transaction fees:

  • Use a card that doesn't charge the fee. Travel credit cards often do not charge foreign transaction fees.
  • Pay with cash by exchanging or withdrawing cash before or during your trip.

If you plan on using cash, review your bank account terms first. Some banks charge higher fees for ATM withdrawals outside the U.S., plus conversion or transaction fees. However, there are also options that refund or offer fee-free ATM usage internationally.

Using a credit card to withdraw cash from a foreign ATM can be expensive. Even if the card doesn't have a foreign transaction fee, you still may be charged a cash advance fee for the transaction, and immediately start accruing interest.

Dynamic Currency Conversion

Foreign merchants and point-of-sale devices may let you make a purchase in USD. While you might think this is an easy way to avoid foreign transaction fees, it's often not the best option.

If you choose to pay in USD, you might avoid the card network conversion fee. However, the merchant or payment processor may charge a dynamic currency conversion (DCC) fee—in other words, a markup on the exchange rate—that winds up costing you even more overall.

In some cases, the DCC could be more than a card network conversion fee and card issuer's foreign transaction fee combined. Some credit cards will also still charge you the foreign transaction fee because you're using the card in a different country.

Find Credit Cards Without Foreign Transaction Fees

You can use the features from Experian to compare credit cards with no foreign transaction fees. Travel cards often require good credit for approval; if you're not sure where your score stands, you can check your credit score for free with Experian to see if you're likely to qualify.

Also, consider whether having more than one card might make sense. For instance, you could use a great cash back credit card with a foreign transaction fee when you're at home—and a second card that doesn't have the fee for when you're traveling abroad. Doing so can also help you earn different types of rewards and get extra value from the cards in your wallet.