You have just returned from an expensive trip abroad. Looking through your credit card statement, you notice expected costs for airfare, room and board, and “international transaction” fees. What it is?
An overseas transaction fee is a fee, typically around 3 percent, that many credit card issuers and payment networks add to every transaction you make overseas.
However, these days more and more credit card issuers offer card products with no foreign transaction fees, so you don’t have to pay this extra fee if you don’t want to. The key is to find an international transaction fee-free credit card you like and sign up before you go on your next international trip.
If you have cards that still charge international transaction fees – or you’re just not familiar with fees in general – here are the ins and outs of this particular fee and tips for avoiding additional fees when traveling abroad.
What are the fees for foreign transactions?
An international transaction fee, also referred to as an international transaction fee, is charged to cardholders when they purchase goods overseas or when they make purchases that use an overseas bank to process the transaction.
Why do some credit cards charge foreign fees? According to experts, this fee is charged because international purchases require additional processing effort.
Foreign transaction fees exist “because banks have to convert the money you spend into U.S. dollars so they can withdraw money from your account,” said Victoria L. Filet, financial advisor at Roosevelt Wealth Management in New York.
This conversion costs money, and some card-issuing banks pass this cost on to consumers in the form of foreign transaction fees.
According to Nessa Feddis, vice president and senior counsel for the American Bankers Association, foreign transaction fees also help banks offset the higher fraud risks associated with international transactions.
“There are risks and costs associated with any conversion of money,” she said.
Does my card charge a transaction fee abroad?
Not sure if your credit card will charge you for overseas purchases? Review the terms of use of your credit card, where any possible fees will be listed in the “transaction fees” section.
Foreign transaction fees vary by issuer and card, but in most cases range from 1 to 3 percent of each eligible transaction. The total fee often consists of two separate fees – one from the payment networks and one from the card issuing bank.
Visa and Mastercard, which process transactions between foreign merchants or banks and US card-issuing banks, typically charge a 1% fee for each foreign transaction. Card-issuing banks can then charge their own fees, usually an additional 1 or 2 percent.
American Express does not use Visa or Mastercard, but on its cards that charge foreign transaction fees, the network typically uses its own foreign transaction fee of 2.7%.
Credit card fare disappears
Luckily, credit card fees for overseas purchases mostly go the way of the dinosaurs. Some credit card issuers, such as the Pentagon Federal Credit Union, Capital One, USAA, and Discover, have even waived foreign transaction fees from all of their credit cards.
Other issuers have not completely waived foreign transaction fees, but most of their new card offerings do not charge them.
This is especially true of travel credit cards, which are for people who are more likely to leave the country and shop abroad. As more and more travel credit cards are waiving fees overseas, this is forcing all card issuers to tailor their offerings to an increasingly fee-sensitive consumer base.
“Cards with no foreign transaction fees are widely available in a highly competitive market as banks struggle to attract and retain customers,” said ABA’s Feddis. “For people who do not travel abroad, this may not be important, but for many it can be very important. So you will see the reaction of banks. It is the customers who determine the possibilities and conditions of the credit card.”
What about fees at foreign ATMs?
Many banks still charge foreign transaction fees for cash withdrawals from foreign ATMs, even though foreign credit card purchases can be made without fees. Some banks waive certain fees if you withdraw money from ATMs of a partner bank.
For example, Bank of America typically charges a 3 percent fee for withdrawing cash from a foreign ATM. However, if you use an ATM from one of the company’s Global ATM Alliance partners, which includes Barclays United Kingdom, Deutsche Bank, China Construction Bank and six others, there is no charge, according to the Bank of America website.
In general, ATM fees for international transactions may vary depending on the issuer, the card, and how you use it. Travelers who withdraw cash from ATMs in local currency may be charged a fee:
- The flat international ATM fee charged by your bank when using an ATM that is not affiliated with your bank is usually $5, but may vary.
- The foreign currency conversion fee charged by your bank is usually a percentage of the withdrawal amount, usually 3 percent.
- An additional ATM access fee charged by the owner of the foreign ATM you use.
“It’s different if you have a bank with international branches or if you have a deposit where they charge no commission,” Fille said. “But I think it’s hard to avoid ATM fees in another country.”
As a result, it’s probably best to avoid using cash and pay with a credit card instead, especially if it’s free.
“You no longer need to use cash for many things, depending on where you are heading,” Feddis added. “It’s easy enough to pay with plastic and not withdraw cash at all.”
Again, you can also simply switch to a checking account, which will not incur additional fees for using a foreign ATM. Surprisingly, quite a few alternative banking products are now available that allow you to use ATMs abroad for free, at least on certain networks.
For example, the SoFi Checking and Savings account allows users to withdraw cash from more than 55,000 ATMs around the world, and there are no other fees for using the account.
Chase Sapphire Checking has also become popular with consumers traveling around the world due to its exceptional travel benefits. This account does not charge ATM fees no matter where you are in the world, bank transfer fees or stop payment fees.
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COMMISSIONS FOR FOREIGN TRANSACTIONS: WHAT CARDS ARE THERE |
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| Issuer | Issuer’s commission | MC/Visa Fee | General fee | Commission for foreign ATM |
| American Express | 2.7% | N/A | 2.7% | 2.7% commission for foreign currency withdrawals on some accounts |
| Bank of America | 2% | one% | 3% | US$5 usage fee for each non-Global ATM Alliance partner plus a 3% currency conversion fee for each withdrawal, regardless of ATM type. |
| Barclaycard | 2% | one% | 3% | 3% currency conversion fee |
| Capital One | None | 1% but not transferable to cardholders | None | $2 fee plus 3% currency conversion fee for some accounts |
| chase | 2% | one% | 3% | $5 withdrawal plus 3% currency conversion fee; fees waived on some accounts |
| City | 2% | one% | 3% | Currency conversion fee 3% for some accounts |
| discover | None | N/A | None | None |
| HSBC | None | None | None | Currency conversion fee 2.8% for some accounts |
| Pentagon Federal Credit Union | None | 1% but not transferable to cardholders | None | Up to 2% of the amount of each transaction |
| USA | None | None | None | 1% of the amount of each transaction |
| US bank | Undisclosed | Undisclosed | 3% | Up to 3% of the amount of each transaction |
| Wells Fargo Co. | 2% | one% | 3% | $5 for ATM withdrawals, $2.50 for balance inquiry, and $2.50 for transferring money between accounts. |
How to avoid unnecessary travel expenses
Frequent travelers probably know that they may face foreign transaction fees if they use a credit or debit card abroad. However, it’s now easier than ever to avoid unnecessary fees and still make sure you have access to cash and credit when you need it most.
These tips can help you save money when you travel anywhere, but especially abroad:
- Know the terms of your card. If you can’t easily find information about foreign transaction fees, pick up the phone and call the number on the back of your card. You can also find the terms and conditions of the most popular credit cards online. Just find the card you have and click where it says “prices and conditions”.
- Explore the network of foreign banks. Check if your bank is part of a global ATM network that you can use to access cash abroad for free, or at least at a lower cost. Again, you can usually find information about banking fees for the account you use online, but you can also call and ask.
- Use only credit abroad. Don’t use a debit card in a foreign country, Filet said. Not only can you avoid paying fees if you rely on a free credit card for overseas transactions, but you’ll also be protected if something goes wrong with an overseas transaction, Fille explained. “Let’s say you ordered something in a foreign country, paid for it, but it never arrived,” she said. “If you have a credit card in good standing, they will back you up and fight for you to either pay back the loan or the product.”
- Always pay in local currency. Sometimes foreign sellers offer to exchange your purchase for US dollars before paying by card. Both Feddis and Fillet advised you to politely decline this offer, as it could result in dynamic currency conversion costs that you would have to bear. Instead, let your card bank and network convert the currency to US dollars and charge you the set international transaction fee – if it exists at all. If yes, then it will probably be more affordable.
- Apply for a free card. If you travel frequently, it may make sense to apply for a credit card that does not charge foreign transaction fees. Many of the best travel credit cards offer tons of perks without any foreign fees.
bottom line
It is best to avoid foreign transaction fees whenever possible. Because most overseas transaction fees charged by credit card issuers range from 1 to 3 percent, you can spend an additional $10 to $30 for every $1,000 spent overseas.
Luckily, there are many cards on the market today that cater to those who are more likely to make international purchases and therefore do not charge for spending outside of the US.
Read the cardholder agreement before using the card abroad, especially if you don’t use it very often. If so, it might be time to consider adding a new, more travel-friendly card to your wallet.
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