What Is a Foreign Transaction Fee?
Quick Answer
- Foreign transaction fees may be charged for credit and debit purchases outside the U.S. or from foreign merchants online.
- Fees are typically 1% to 3% of the transaction amount.
- A credit card with no foreign transaction fees can help you avoid this expense.
A foreign transaction fee is a fee you may be charged for credit and debit card purchases made in foreign currencies abroad or online. If you're not mindful of foreign transaction fees on your credit card while traveling internationally, your trip could easily go over budget.
Not all credit cards have foreign transaction fees, however. Travel credit cards generally do not charge them, and offer many additional benefits for international travelers. Here's what you need to know.
What Is a Foreign Transaction Fee?
A foreign transaction fee is a percentage-based fee that some credit card issuers charge when you make purchases in a foreign currency. Debit cards often charge foreign transaction fees as well.
Sometimes called a foreign purchase transaction fee, the fee is typically 1% to 3% of your purchase amount and usually appears on your monthly credit card statement as a separate item or a fee.
Whether your card charges a foreign transaction fee or not, you might have to pay a markup on the currency conversion rate, though the amount can vary depending on the credit card network and currencies.
Tip: Visa and Mastercard have online calculators you can use to check their current exchange rates and fees.
Dynamic Currency Conversion
When you're using your card for a purchase in a foreign country or making an online purchase with a foreign merchant, you may have the option to pay in U.S. dollars (USD) rather than local currency. This is called dynamic currency conversion (DCC). The benefit of DCC is that it converts currency for you, so it's easy to see how much you're spending in USD.
But while DCC might sound like an easy way to avoid foreign transaction fees, paying in USD is often more expensive than using local currency. With DCC, your card network is no longer handling currency conversion. Instead, the foreign bank or payment provider handles it, typically using their exchange rate and often charges a markup and additional fees. As a result, using local currency and letting your card issuer manage currency conversion often costs less.
Tip: If you're struggling to figure out how much you're spending, use a currency conversion app or look up the current exchange rate and use your phone's calculator. This extra step can save you money over the course of a trip abroad.
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When Are Foreign Transaction Fees Charged?
There are several situations where you might be charged a foreign transaction fee.
Purchases Made Outside the U.S.
Making a purchase in a foreign country with a credit card or debit card will often incur a foreign transaction fee. You can check your card's terms for details to see if there is a foreign transaction fee and how much it is.
Purchases From Foreign Online Merchants
Buying products online from merchants in other countries may incur a foreign transaction fee, even if the purchase price is displayed in USD.
Getting Cash From an ATM in a Foreign Country
Withdrawing cash from an ATM outside the U.S. can incur multiple fees, including a foreign transaction fee, even if the ATM is in your bank's network. Look for a bank that doesn't have foreign transaction fees or refunds ATM fees.
International Subscription Services
Subscribing to an app, streaming service or other subscription from a foreign country that charges in non-U.S. currency could result in a foreign transaction fee.
How Much Do Foreign Transaction Fees Cost?
Foreign transaction fees generally cost 1% to 3% of the transaction amount. This may not sound like much, but it can quickly add up to a lot of wasted money, especially when you consider how much you might spend on international purchases during an overseas trip of a week or two.
The table below shows examples of what foreign transaction fees for various purchase amounts might cost.
| Purchase Amount | 1% Fee | 2% Fee | 3% Fee |
|---|---|---|---|
| $50 | $0.50 | $1.00 | $1.50 |
| $100 | $1.00 | $2.00 | $3.00 |
| $500 | $5.00 | $10.00 | $15.00 |
| $1,000 | $10.00 | $20.00 | $30.00 |
Who Charges Foreign Transaction Fees?
Foreign transaction fees may be charged by credit card networks, credit card issuers or both.
- Credit card networks, such as Mastercard, Visa, American Express and Discover, process transactions by transferring information and funds from cardholders to merchants.
- Credit card issuers are financial institutions that offer credit cards. Some credit card networks, such as American Express and Discover, are also credit card issuers.
If both the card network and card issuer charge fees, these amounts are typically combined into one foreign transaction fee on your credit card statement.
How to Avoid Foreign Transaction Fees
There are some ways to avoid paying foreign transaction fees.
- Use a credit card with no foreign transaction fee. For example, travel credit cards typically don't charge foreign transaction fees, giving you the protections of a credit card without the extra expense.
- Use a debit card with no foreign transaction fee. Some debit cards do not charge foreign transaction fees, but keep in mind that debit cards offer less fraud protection than credit cards. This could leave you vulnerable if you don't spot and report fraud quickly.
- Use cash. Compare currency exchange rates and fees to decide if cash is the best option for foreign currency purchases. You may find that a credit card with no foreign transaction fees offers a more favorable exchange rate.
Learn more: Best No Foreign Transaction Fee Credit Cards
Frequently Asked Questions
The Bottom Line
Whether you're headed for an international vacation or planning to make a purchase online from a foreign merchant, using the right credit card can avoid foreign transaction fees and save you money. A travel credit card without a foreign transaction fee may be a good option if you often travel outside the U.S. If you're considering a new credit card for your overseas travels, Experian's credit card comparison platform can show you credit cards matched to your unique credit profile.
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About the author
Karen Axelton
Karen Axelton specializes in writing about business and entrepreneurship. She has created content for companies including American Express, Bank of America, MetLife, Amazon, Cox Media, Intel, Intuit, Microsoft and Xerox.
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