Currency Conversion Fee

What Is a Currency Conversion Fee?

A currency conversion fee, sometimes called a “foreign currency conversion fee” or “foreign currency exchange fee,” is a charge assessed by a foreign merchant to convert transactions involving foreign currency into dollars. It is calculated by your credit or debit card payment processor (in the case of a purchase)—or your ATM network (in the case of a withdrawal)—or it can be calculated at the point of sale by using a system called dynamic currency conversion (DCC). It is often mistaken for a foreign transaction fee, which is actually a fee on the transaction itself. The currency conversion fee is frequently incorporated into the foreign transaction fee on credit card statements, which explains the confusion.

Key Takeaways

  • A currency conversion fee is a charge levied by the credit or debit card payment processor or ATM network to convert one currency to another as part of a financial transaction.
  • A foreign transaction fee is a charge levied by your credit or debit card issuer or ATM network on the same transaction.
  • The foreign transaction fee may include the currency conversion fee, depending on whether the card issuer or ATM network passes that fee along to you. (Some cards don't charge foreign transaction fees.)
  • Dynamic currency conversion (DCC) is usually more costly than currency conversion through the credit card processor, but it lets you see the cost of your transaction in U.S. dollars when you make it as opposed to when you get your credit card bill.

How Currency Conversion Fees Work

When you make a credit or debit card purchase or an ATM withdrawal involving a foreign currency, the amount of it must be converted to your home currency (i.e., U.S. dollars) in order to be processed by your bank. A currency conversion fee may be charged for this process.

DCC kicks in when the merchant or ATM offers (and you accept) the option of being billed in U.S. dollars at the point of sale, rather than in the local currency. While this may sound convenient, that convenience usually comes at a much higher cost than just letting your credit card payment processor do the conversion. This is because the DCC fee will likely be higher than the one charged by your credit card company. In addition, you will still have to pay the foreign transaction fee (if any) levied by your credit card issuer.

Letting your credit card company do the conversion means you won’t see your cost in dollars until you get your statement. If you know your credit card foreign transaction and/or currency conversion fee and have a currency exchange rate app, such as XE Currency, you can approximate your cost fairly easy.

A typical credit card currency conversion fee is 1% of the purchase price, DCC fees range from 1% to 3% (or more), and a typical foreign transaction fee is 2% to 3%.

Currency Conversion Fee vs. DCC vs. Foreign Transaction Fee

A currency conversion fee is typically 1% of the purchase price. It is levied by the credit card payment processor (usually Visa, MasterCard, or American Express) or ATM network and often passed on to you as part of the foreign transaction fee.

A foreign transaction fee is a per-transaction charge, typically 2% to 3% of the purchase price, levied by your credit or debit card provider (often a bank) or ATM network when you use your U.S. issued credit card in another country. It can also apply to purchases made online from the U.S. from a foreign vendor that processes transactions in its local currency. A foreign transaction fee may include the payment processor’s currency conversion fee, but It does not include DCC charges.

Though DCC allows you to know the cost of your purchase in dollars right away, it comes with a high currency conversion rate. One European study found exchange-rate markups of from 2.6% to 12%. You have the option to decline DCC.

Avoiding Fees

If you agree to DCC when you make the purchase or withdrawal, that purchase will also be subject to any foreign transaction fee levied by your credit card, debit card, or ATM network. This could result in total fees of up to 7% or more. To avoid these added costs, use a credit or debit card with no foreign transaction fee and decline DCC.