What is a foreign transaction fee?

Oct 23, 2020

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There’s very little in the travel and credit card industry that we hate more at TPG than unnecessary fees — including foreign transaction fees. You may have noticed that when you use some credit cards abroad (or on a website not hosted in the U.S.), an additional fee gets tacked on to each purchase. 

Today, I’m walking through what those fees are and how you can avoid them in the future. 

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In This Post

What are foreign transaction fees?

Foreign transaction fees are charged on certain cards when you make a purchase that goes through an overseas bank to process the transaction. When you make a transaction while traveling or while on a non-U.S. website, banks may have to convert the purchase into U.S. dollars. On some credit cards, issuers will then pass the cost of conversion over to consumers. 

Generally, foreign transaction fees hover around 3% for most issuers — Visa and Mastercard charge a 1% fee to banks for processing purchases made abroad, and many U.S. issuers tack on an additional 1-2% fee on top of that. 

Card issuer:  Standard foreign transaction fee: 
American Express 2.7%
Barclays 3%
Bank of America 3%
Chase 3%
Citi 3%
U.S. Bank 3% for different currencies; 2% for USD transactions
Wells Fargo 3%

How to know if my card charges foreign transaction fees

Card issuers are required to give potential and existing customers access to rates and fees associated with a credit card, including foreign transaction fees. Check the terms and conditions of your credit card to see whether or not your card (or the card you’re considering applying for) charges foreign transaction fees. 

When looking at the rates and fees table, you can typically find the foreign transaction fee listed explicitly under a fees section. 

(Screenshot courtesy of the Chase website on the Chase Freedom Unlimited pricing and terms page) 

Foreign transaction fees vs. ATM fees?

Another type of fee you may hear about when you travel is a foreign ATM fee. While the two both fees can apply when you are traveling outside the U.S., they are not synonymous. 

A foreign ATM fee is charged when you withdraw cash from an ATM in a foreign country. Some banks waive this fee, especially if you use an ATM that falls within a specific network of banks. 

Additionally, you might be on the hook for additional fees when you use an ATM abroad, including a flat fee from your bank for using an ATM not affiliated with the bank (which is typically $5), a foreign currency conversion fee (which typically falls in line with foreign transaction fees at 3%), and additional fees charged by the owner of the specific ATM you use. 

This is one reason why we recommend paying with a credit card wherever you can. But in some places, cash is still king and you’ll need to have a game plan for avoiding these types of fees — or factoring them into your budget. 

Related: Ways to save on overseas ATM withdrawals 

Using an ATM abroad could come with other pesky fees. (Photo by Vera Arsic/EyeEm/Getty Images)

How to avoid foreign transaction fees

The easiest way to avoid foreign transaction fees is to use a card that doesn’t charge them. TPG has a regularly updated guide on the top credit cards with no foreign transaction fees that can help you figure out which are the best to use for your trips. 

Most of the top travel credit cards don’t charge foreign transaction fees. In fact, it’s rare for a card that offers travel rewards and perks to charge any foreign transaction fees. They are more common on cash-back cards such as the Chase Freedom Unlimited and the Blue Cash Preferred® Card from American Express (see rates and fees). Though keep in mind that some issuers including Capital One don’t charge foreign transaction fees at all across its cards.

Of course, you’ll also avoid foreign transaction fees by paying with cash. But those purchases won’t earn you any rewards, and withdrawing cash while abroad may be subject to its own set of pesky fees. 

Bottom line 

The good news is that foreign transaction fees are a lot less common across top credit cards than they used to be. Hopefully, the industry as a whole is moving away from charging customers these types of fees. 

Until then, make sure you’re checking your credit card’s terms and conditions to know if you’ll be on the hook for a fee when you’re traveling and plan your card usage accordingly.

For rates and fees of the Blue Cash Preferred card, click here.

Featured image by LeoPatrizi/Getty Images

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