A foreign transaction fee is a fee that banks and other credit card issuers charge in conjunction with credit card networks like Visa on a transaction that occurs in a foreign currency or is processed by a foreign bank (even if a foreign currency wasn’t used). The fee can apply when you use your credit card outside of the U.S., or when you make a domestic purchase in a foreign currency or buy something in U.S. dollars from a merchant that doesn’t process the transaction in the U.S (for example, a telephone or online order from an airline or another company based internationally).
How Credit Card Foreign Transaction Fees Work
These fees are charged for the convenience of converting a foreign currency into U.S. dollars. They’re typically assessed at the end of your monthly billing cycle, and the result is that you’ll pay the original price plus the markup of the fee for any applicable international purchases. Take a look at an example of credit card foreign transaction fees at work:
You’re traveling in Italy and buy dinner for $100 using a card on the Visa network.Visa applies a 1% fee or $1 to the cost of your dinner.The card-issuing bank charges 2% in fees or $2 to the cost of the meal, bringing the total foreign transaction fee to 3%.Your credit statement will show a charge of $103 (100*0.03).
As the example shows, the fee can increase the costs of individual international transactions and the overall cost of overseas trips. And, assuming your credit card offers rewards, you won’t necessarily earn rewards on what you pay in foreign transaction fees.
How Much Is a Credit Card Foreign Transaction Fee?
The fee consists of two parts:
Card network fee: Networks that process credit card payments (such as Visa) charge a fee of around 1% of the cost of the transaction. For example, Visa and MasterCard commonly charge a 1% foreign transaction fee, American Express charges a 2.7% fee, and Discover charges no foreign transaction fee.Card issuer fee: Banks and credit unions that issue credit cards tack an additional 1% to 2% in fees on top of the network fee.
This means that the foreign transaction fee is between 1% and 3% of the transaction in U.S. dollars, depending on your credit card issuer and payment processing network.
How to Keep Credit Card Foreign Transaction Fees Low
You can minimize your overseas trip costs by avoiding cards that impose these fees or choosing cards that impose fees on the lower end of the range mentioned earlier. There are plenty of credit cards that don’t charge a foreign transaction fee, so consider opening one of these before making an international trip. Both Capital One and Discover have removed the foreign transaction fee from all their credit cards, so if you already have one of these in your wallet, you can swipe on your trip knowing you won’t incur any extra fees. Similarly, Visa, Mastercard, and American Express all offer some cards without a foreign transaction fee. When you’re shopping for a credit card, or trying to determine whether your own card comes with the fee, read through the credit card disclosure to find out whether you’ll be charged a foreign transaction fee and the amount of the fee. This is key for any credit card you may use for international purchases. If you don’t have a copy of your credit card agreement, find it on your credit card issuer’s website or the Federal database for credit card agreements. Or, call your credit card issuer to learn whether your credit card charges a foreign transaction fee and how much you can expect to pay. While you’re on the phone, let your credit card issuer know you’ll be traveling overseas so they won’t automatically flag your international purchases as fraudulent. Keep in mind: Many issuers, like Bank of America and Capital One, no longer require these notices because of the enhanced security on chip credit cards.
