Foreign transaction fees are becoming easier to avoid. If you have travel in mind, here’s how they work, which cards charge them and which don’t.
You just got back from a pricey trip abroad. While reviewing your credit card statement, you noticed the expected airfare, lodging and food charges, but also “foreign transaction fee” charges. What’s that all about?
A foreign transaction fee is a charge, usually around 3%, that many credit card issuers and payment networks add for each transaction you make abroad.
These days, however, more and more credit cards issuers are offering card products with no foreign transaction fees, so you don’t have to pay this extra charge if you don’t want to. The key is finding a credit card with no foreign transaction fee that you like and signing up before you leave on your next international trip.
If you do have cards that still charge a foreign transaction fee – or are just unfamiliar with the fee overall – here are the ins and outs of this particular fee and advice on avoiding extra charges when traveling abroad.
What are foreign transaction fees?
Foreign transaction fees, also called international transaction fees, are charged to cardholders when they purchase items while overseas or when they make purchases that use an overseas bank to process the transaction.
Why do some credit cards charge foreign fees? According to the experts, this fee is levied because international purchases require extra effort to process.
Foreign transaction fees exist “because banks have to convert your money spent into U.S. dollars so they can charge your account,” said Victoria L. Fillet, a financial adviser at Roosevelt Wealth Management in New York City.
That conversion costs money, and some card-issuing banks pass that cost along to consumers in the form of foreign transaction fees.
According to Nessa Feddis, vice president and senior counsel for the American Bankers Association, foreign transaction fees also help banks offset the greater fraud risks associated with international transactions.
“There are risks and costs associated with any money conversion,” she said.
Does my card charge foreign transaction fees?
Not sure if your credit card will charge you a fee for foreign purchases? Check your credit card’s terms and conditions, where any potential fees will be listed under “transaction fees.”
Foreign transaction fees vary between issuers and cards, but most foreign transaction fees fall between 1% and 3% of each qualifying transaction. The overall fee is often made up of two separate fees — one from the payment networks and one from the card’s issuing bank.
Visa and Mastercard, which handle the transactions between foreign merchants or banks and U.S. card issuing banks, typically charge a 1% fee for each foreign transaction. Then, card-issuing banks may tack on their own charges, usually an additional 1% or 2%.
American Express doesn’t use the Visa or Mastercard payment system, but on its foreign transaction fee-charging cards, the network typically tacks on its own foreign transaction fee of 2.7%.
(See chart below to compare credit card issuers’ foreign transaction fees.)
Credit card travel fees are fading away
Fortunately, credit card fees for foreign purchases are mostly going the way of the dinosaur. Some credit card issuers, such as Pentagon Federal Credit Union, Capital One, USAA and Discover, have even eliminated foreign transaction fees from all their credit cards.
Other issuers haven’t done away with foreign transaction fees entirely, but they have made sure most of their new card offerings don’t charge them.
This is especially true among travel credit cards, which are geared to people who have a higher likelihood of leaving the country and making international purchases. With more travel credit cards opting out of charging foreign fees, that puts the pressure on all card issuers to tailor their offerings to an increasingly fee-sensitive consumer base.
“Cards without foreign transaction fees are widely available in a highly competitive market as banks fight to attract and keep customers,” ABA’s Feddis said. “For people who don’t travel abroad it may not be important, but there are many for whom it might be very important. So you will see banks respond. It’s the customers who drive the credit card features and terms.”
What about foreign ATM fees?
Many banks still charge foreign transaction fees for withdrawing cash at foreign ATMs, even if foreign credit card purchase transactions can occur fee-free. Some banks waive certain fees if you withdraw money from partner bank ATMs.
For example, Bank of America generally charges a 3% fee to withdraw cash from a foreign ATM. However, if you use an ATM at one of the company’s Global Alliance Partners, which includes Barclays, Deutsche Bank, China Construction Bank and six others, the fee is waived, according to the Bank of America website.
Overall, ATM foreign transaction fees can vary depending on the issuer, the card and how you use it. Travelers who withdraw cash from ATMs in the local currency may incur several fees:
- A flat-rate international ATM surcharge charged by your bank when using an ATM not affiliated with your bank, usually $5, but it may vary
- A foreign currency conversion fee charged by your bank, typically a percentage of the withdrawal amount, usually 3%
- An additional ATM access fee charged by the owner of the foreign ATM you are using
“It’s different if you have a bank that has international branches or if you have a level of deposit where they don’t charge fees,” Fillet said. “But I think it’s difficult to avoid ATM fees in a foreign country.”
As a result, it’s probably best to avoid using cash and pay with a credit card – especially if it’s fee-free – instead.
“You don’t have to use cash for a lot of things anymore either, depending on where you are going,” Feddis added. “It’s easy enough to pay with plastic and not have to withdraw cash at all.”
Then again, you could also just switch to a checking account that won’t hit you with extra fees for using a foreign ATM. Surprisingly, there are quite a few alternative banking products available right now that allow fee-free ATM usage overseas, at least within specific networks.
For example, the SoFi Money account allows users to withdraw cash at more than 55,000 ATMs around the world, and there are no other account fees to speak of.
Chase Sapphire Banking has also become popular among consumers who travel internationally due to its exceptional perks for overseas trips. This is due to the fact this account offers no ATM fees regardless of where you are in the world, as well as no fees for wire transfers or stop payment fees.
FOREIGN TRANSACTION FEES: WHICH CARDS HAVE THEM
|Issuer||Issuer fee||MC/Visa fee||Total fee||Foreign ATM fee|
|American Express||2.7%||N/A||2.7%||2.7% foreign currency withdrawal fee on some accounts|
|Bank of America||2%||1%||3%||$5 usage fee for each non-Global ATM Alliance partner, plus 3% currency conversion fee for each withdrawal, regardless of ATM type|
|Barclaycard||2%||1%||3%||3% currency conversion fee|
|Capital One||None||1%, but not passed on to cardholders||None||$2 fee plus 3% currency conversion fee for some accounts|
|Chase||2%||1%||3%||$5 per withdrawal, plus 3% currency conversion fee. Fees waived on some accounts|
|Citi||2%||1%||3%||3% currency conversion fee for some accounts|
|HSBC||None||None||None||2.8% currency conversion fee for some accounts|
|Pentagon Federal Credit Union||None||1%, but not passed on to cardholders||None||Up to 2% of each transaction amount|
|USAA||None||None||None||1% of each transaction amount|
|U.S. Bank||Not disclosed||Not disclosed||3%||2% to 3% of each transaction amount|
|Wells Fargo||2%||1%||3%||$5 for ATM withdrawals, $2 for balance inquiries and $2 to transfer money between accounts|
How to avoid unnecessary travel costs
Frequent travelers probably know they can get slammed by foreign transaction fees if they use a credit card or debit card abroad. However, it’s easier than ever to avoid unnecessary fees while still making sure you have access to cash and credit when you need it most.
These tips can help you save when you travel anywhere, but especially abroad:
- Know your card terms. If you can’t readily find information about foreign transaction fees, pick up the phone and call the number on the back of your card. You can also find the terms and conditions of most popular credit cards online. Just find the card you have and click where it says “pricing and terms.”
- Research your overseas bank network. Check to see if your bank is part of a global ATM network that you can use to access cash overseas for free – or at least at a lower cost. Again, you can usually find information on banking fees for the account you’re using online, but you can also call and ask.
- Apply for a fee-free card. If you travel frequently, it may make sense to apply for a credit card that does not charge foreign transaction fees. Fortunately, many of the best travel credit cards offer a ton of perks without any foreign fees.
- Use only credit abroad. Do not use a debit card in a foreign country, Fillet said. Not only can you avoid paying fees if you rely on a foreign transaction fee-free credit card, but you’ll be protected if something goes wrong with a foreign transaction, Fillet explained. “Say you ordered something in a foreign country, paid for it, but it was never delivered,” she said. “If you have a reputable credit card, they will back you up and fight for you to either get the credit back or the product.”
- Always pay in the local currency. Sometimes, foreign merchants will offer to convert your purchase to U.S. dollars before you pay with your card. Both Feddis and Fillet advised to politely decline this offer because it may result in dynamic currency conversion costs that you’ll have to shoulder. Instead, let your card’s bank and network convert the currency to U.S. dollars and charge you the set foreign transaction fee – if there even is one. If so, it’ll likely be more affordable.