Many credit cards charge a foreign transaction fee of up to 3% on purchases you make outside your home country. If you’re planning on traveling abroad, it can be a good idea to pick up a card with no foreign transaction fees.
Here’s what you need to know about foreign transaction fees.
What is a foreign transaction fee?
A foreign transaction fee is a common credit card fee that you will be charged if you use a credit card abroad. Foreign transaction fees are usually up to 3% of the amount of the transaction, after it has been converted into your home currency.
It’s important to know that a foreign transaction fee is a charge for using your card abroad, not just a surcharge on non U.S. currency transactions. If a merchant abroad asks if you want to pay in U.S. dollars, this is a “service” called dynamic currency conversion. It almost always offers a poor exchange rate and you will usually still be charged a foreign transaction fee.
If you’re planning on using your credit card abroad, it can be a good idea to pick up a card that charges no foreign transaction fee.
Credit cards with no annual fee and no foreign transaction fees
Many premium credit cards have no foreign transaction fee, and one of these cards can be a good choice to use abroad if you already have it. But here are credit cards with no annual fee that also have no foreign transaction fees.
- Bank of America® Travel Rewards
- Capital One SavorOne Cash Rewards Credit Card
- Capital One Venture Rewards Credit Card
- Capital One Quicksilver Cash Rewards Credit Card
- Capital One Walmart Rewards® Card
- IHG One Rewards Traveler Credit Card
- Instacart Mastercard®
- Marriott Bonvoy Bold® credit card
- Prime Visa
- United Gateway℠ Card
When do you get charged a foreign transaction fee?
Any time you make a purchase outside the country where your car was issued, you’ll be charged a foreign transaction fee if your card charges one. This includes purchases made online with merchants based abroad. (I found this out the hard way when I used a rewards card to license some software for a project from a company in Germany.)
Do I pay a foreign transaction fee if I pay in U.S. dollars?
A foreign transaction fee is a fee for making a transaction outside your home country, not for making a transaction in another currency. Some places abroad, especially restaurants and shops that cater to tourists, will offer you the option to pay your bill in U.S. dollars. Paying in U.S. dollars won’t help you avoid a foreign transaction fee and will likely be even more expensive than paying in local currency
This practice, known as dynamic currency conversion, isn’t a scam but it is always a bad deal. Dynamic currency conversion almost always offers a (much) worse exchange rate than your bank will give you if you process the charge in local currency. When using your credit card abroad, simply process the transaction in local currency and let your bank do the conversion.
Should I use my rewards card that charges a foreign transaction fee abroad?
Most cards that charge a foreign transaction fee charge 3%. (American Express is an outlier; its foreign transaction fee on many cards is 2.7%.) In most cases, you will be better off by using a card that charges no foreign transaction fee when making purchases abroad. A 3% foreign transaction fee would eat up the 3% rewards you might earn in a credit card bonus category. And there are no annual fee credit cards that offer 1.5% rewards on every purchase with no foreign transaction fee.
How to find you card’s foreign transaction fee
Your card’s foreign transaction fee is listed in your card’s pricing and terms page. This information was shown to you when you applied for your card and was provided by mail or electronically when your card was approved.
If you don’t have access to a copy of your card’s pricing and terms sheet, you can request a copy from your card’s customer service. Or you can simply ask your card’s customer service department what the foreign transaction fee on your card is.
How do I avoid a foreign transaction fee?
The easiest way to avoid a foreign transaction fee is to use a card that has a 0% foreign transaction fee. Most cards geared toward travelers have no foreign transaction fees. Chances are that you have a card in your wallet that charges no foreign transaction fee.
Frequently asked questions
Why am I being charged a foreign transaction feee?
Your credit card’s schedule of fees states which fee you’ll be charged when you make a purchase abroad. If you make a purchase abroad, regardless of currency, you will be charged this fee.
Is it better to exchange money or use a credit card abroad?
Using a credit card with no foreign transaction fee abroad is safer and cheaper than exchanging cash. Banks and cash exchange kiosks will charge a fee for exchanging cash. If you must use cash abroad, withdrawing local currency from a debit card ATM with a bank that doesn’t charge a foreign transaction fee is probably your best bet.
