What Is a Foreign Transaction Fee?

A foreign transaction fee is a charge assessed by a financial institution to a consumer who uses an electronic payment card to make a purchase in a foreign currency. Foreign transaction fees usually apply to card purchases made in foreign countries while traveling, but they can also apply to purchases made online from your home country where the vendor is foreign and processes the transaction in its local currency. Foreign transaction fees are also called “foreign purchase transaction fees” or “foreign currency transaction fees.”

Key Takeaways

  • A foreign transaction fee is imposed by a credit card issuer on a transaction that takes place overseas or with a foreign merchant.
  • These fees are typically 1%–3% of the value of transaction and are paid in dollars.
  • Several banks now offer certain customers waivers on these fees, or fee-free cards.

Understanding Foreign Transaction Fees

Foreign transaction fees are an important consideration when paying for a purchase in a foreign currency with any type of electronic payment card. Consumers will encounter foreign transaction fees from most issuers of both debit and credit cards. Withdrawals from foreign ATMs may also incur a foreign transaction fee.

Foreign transaction fees are typically around 3% of each transaction in U.S. dollars. This fee might consist of a 1% fee charged by the payment processor, such as MasterCard or Visa, plus another 2% fee charged by the card issuer, such as Bank of America or Wells Fargo. While 3% might not sound like a lot, it can really add up over the course of a trip. For every $1,000 you spend, you’ll be paying $30 in foreign transaction fees.

Some foreign merchants will offer consumers the option of paying in their own currency, which is called “dynamic currency conversion (DCC).” However, it is usually cheaper to pay in the foreign currency because DCC rates don’t tend to favor the consumer.

Note that foreign transaction fees differ from, and may be incurred in addition to currency conversion fees.

No Foreign Transaction Fee Cards

If a card charges a foreign transaction fee, it will be listed in the card’s terms and conditions. Some cards do not charge any foreign transaction fees. Discover and Capital One are two financial institutions that do not charge foreign transaction fees for debit or credit card purchases.

If you are planning a trip abroad and all of your existing cards do charge foreign transaction fees, it can be a good idea to apply for a new account that has no foreign transaction fees a couple of months before your trip. Make sure to apply far enough in advance to allow for approval, account setup, and the distribution of your new card in the mail. Also, let the issuer know about your travel plans ahead of time so they will not flag your foreign purchases as fraudulent and freeze your account.

Travel experts often recommend using an electronic payment card for all your purchases when traveling abroad because the exchange rate you get from your card issuer will probably be more favorable than the exchange rate you would get from a currency exchange kiosk. In addition, you avoid the risk of losing cash or having it stolen and if your credit card is lost or stolen, you won’t be responsible for unauthorized transactions.