Foreign transaction fees are fine-print fees your credit card issuer might charge if you make purchases with your card in a currency other than your own.
Because most of us breeze through the terms and conditions when we apply for a credit card, these fees can pop up as an unpleasant surprise after an overseas trip or an online purchase from a foreign merchant.
But plenty of credit cards don’t charge foreign transaction fees, and it’s smart to keep at least one in your wallet if you like to travel.
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What Is a Foreign Transaction Fee?
A foreign transaction fee is a surcharge added to credit card purchases made in a currency other than your own (i.e., U.S. dollars if you’re American). The fee may also be referred to as a “foreign purchase transaction fee,” “foreign currency conversion fee,” or “FX fee.”
But it’s all the same thing: an unnecessary increase to your credit card balance and a sneaky source of revenue for your card issuer.
While these fees are usually associated with traveling abroad, you don’t have to physically be in a foreign country to be charged a foreign transaction fee. If you make an online purchase from an overseas merchant and the purchase is processed in a foreign currency, you might get hit with a foreign transaction fee in that scenario, too.
Card issuers that charge foreign transaction fees are required by the Truth in Lending Act to disclose the fee amount during the credit card application process.
But because the fee is typically listed within eye-glazing terms and conditions, many folks end up paying the fees unknowingly.
How much is a foreign transaction fee?
Foreign transaction fees are typically 2.7% to 3% of a foreign currency purchase amount.
If a credit card you’re considering applying for charges foreign transaction fees, the fee amount will be included in the terms and conditions you’re shown before you submit your application.
Here’s an example of the foreign transaction fee disclosure from Chase:
The amount you lose to foreign transaction fees can easily exceed what you earn in rewards from your spending.
For example, if you use the Chase Freedom Unlimited® card to buy a $150 ticket to the highest observation deck in Dubai’s Burj Khalifa, you’ll earn 1.5% in cashback, or $2.25, for that pricey view.
But the Freedom Unlimited’s 3% foreign transaction fee will simultaneously hit you with a $4.50 charge, flipping the transaction to a $2.25 net loss.
While that one charge might not break the bank, the fees can pile up over the course of a trip abroad.
READ MORE: How To Earn Credit Card Points Fast for Travel
How To Avoid Foreign Transaction Fees
The best way to avoid foreign transaction fees is to use credit cards with no foreign transaction fees whenever you make foreign currency purchases.
While anyone who travels internationally can save money by using no-foreign-transaction-fee credit cards, they’re an absolute must for those who spend significant time overseas, like digital nomads or expats.
If you’re hesitant to add another credit card to your wallet, keep in mind that responsibly using credit cards generally makes more financial sense than other payment methods, whether at home or abroad.
READ MORE: How Many Credit Cards Should I Have?
Do debit cards have foreign transaction fees?
Some checking accounts have debit foreign transaction fees and/or fees for cash withdrawals at foreign ATMs.
Wells Fargo’s Everyday Checking account, for instance, lists both in its fee schedule:
Other checking accounts, like Capital One’s 360 Checking, don’t charge additional fees for foreign currency debits or other cross-border transactions.
But even if your debit card doesn’t charge foreign transaction fees, it’s still preferable to use credit cards without foreign transaction fees when traveling or shopping online.
Credit cards have many advantages over debit cards, provided you pay your balance off in full each month:
- Debit cards generally earn less rewards than what you can get from top rewards credit cards.
- Debit cards are legally less protected from fraud than credit cards.
- Debit card use typically won’t help you improve your credit score.
READ MORE: Credit Card vs. Debit Card: Which Is Better?
Can’t I just use cash?
I recommend keeping about three days’ worth of local currency on hand when traveling overseas. Smaller merchants may not accept credit cards, and if your card is stolen you’ll need temporary survival money while you wait for your issuer to send you a new one.
But carrying too much cash with you is risky. And you’ll pay some kind of surcharge when exchanging hard currency, anyway:
- Currency exchange kiosks usually offer very poor exchange rates and may also charge flat fees per exchange.
- Ordering foreign currency from your bank or credit union will likely give you a better rate than a currency exchange kiosk, but the markup may still be significantly higher than the standard 3% you’d pay in credit card foreign transaction fees.
- Overseas ATM withdrawals may not incur a fee from your debit card issuer, depending on your checking account type. But the ATM will likely tack on its own transaction fee, which your bank or credit union may not reimburse.
FAQs
What is dynamic currency conversion?
Dynamic currency conversion (DCC) is an optional payment processing method provided by some foreign merchants that allows your purchase to be processed in USD rather than local currency.
It sounds better to pay in your home currency, but DCC typically includes a markup above the standard exchange rate, and some credit card issuers may still charge foreign transaction fees even if your purchase is processed with DCC.
Why am I being charged a foreign transaction fee?
You’re likely being charged a foreign transaction fee because you made a foreign currency purchase with a credit card that includes foreign transaction fees in its fee schedule.
While most travel rewards cards no longer charge foreign transaction fees, they’re still relatively common among cashback cards.
TL;DR: Don't Let FX Fees Inflate Your Travel Bills
While planning your next trip outside the U.S., take a few minutes to review your credit cards' cardholder agreements (or call your cards' issuers) to find out if you have any cards without foreign transaction fees.
If you discover that all your cards charge FX fees, check out our list of no-foreign-transaction-fee credit cards and consider applying for one that aligns with your travel needs and credit score.
The money you would have spent on FX fees can be redirected where it belongs: making the most of your overseas adventure!
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