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No Foreign Transaction Fees – True or False?

- Sep 12, 2021 Credit Card Info, Travel2 comments

When you’re on vacation, the last thing you want to be thinking about is added expenses. But credit card foreign transaction fees can go up to 3%, which is no insignificant number. (‘Specially when the minimum is 3 $5.00 iced coffees a day.) 

Thankfully, there are many credit cards that don’t charge a foreign transaction fee (check out the full list here). However, that doesn’t mean that using a ‘no foreign transaction fee’ card will be completely free. 

In this post, we’ll go through everything you need to know about using your credit card for foreign transactions.

What is a foreign transaction fee?

A foreign transaction fee is a fee charged for conducting transactions outside of your home country. 

Btw, if you’re purchasing goods online from other countries, even though you’re shopping in your own country, you may also get hit with a foreign transaction fee. 

There’s a debate if this is legally allowed, based on the credit card agreements of some credit card issuers. You can join a class action lawsuit against the credit card issuers here).

The difference between foreign transaction fee and currency conversion fee:

A currency conversion fee is a fee charged by the payment processor (Visa, Mastercard. Discover, Amex) for converting foreign currency to your local currency. For example, converting British pounds to USD.

Most credit card issuers including Amex, Chase, Bank of America, and Capital One combine the currency conversion fee with the foreign transaction fee. US Bank does not.

For example, on the terms of the US Bank Cash Visa Signature card it states that the foreign transaction fee is 2% of each foreign purchase transaction or foreign ATM advance transaction in U.S. Dollars

And 3% of each foreign purchase transaction or foreign ATM advance transaction in a foreign currency. 

So basically, US Bank charges an extra 1% fee for transactions in foreign currencies.

What happens if your credit card has no foreign transaction fees?

When a card offers ‘no foreign transaction fees’ then usually the bank will swallow the currency conversion fee as well. 

So that will bring you to a net  total of 0 fees charged for transactions done aboard.

But does that mean that using your cards abroad will cost you absolutely zero?

No. Here is why:

What is the currency exchange rate you get when using a credit card abroad?

Credit card issuers always know how to make money, and converting currency is one method. When you purchase on a credit card abroad, the credit card network (Visa, Mastercard, Discover, Amex) gets to choose at what rate they convert the currency at.

So what is the rate used?

You will see the exact rate used on your credit card statements. They are usually a drop higher than the standard exchange rate.

Visa and Mastercard both have calculators where you can check out rates even before you make the purchase. Amex and Discover do not publicize their exchange rates publicly

Visa exchange rate calculator 

Mastercard Exchange rate calculator 

This is an example of the Visa exchange rate for British pounds to USD on 08/24/21

Credit card exchange rate European central bank exchange rate Markup
Visa $1.3734 per sterling pound 1.3727 per sterling pound 12 cents for every $100  

Foreign currency does not get converted the same day:

When using a credit card for foreign transactions, there is another thing to consider. The currency will not be converted on the day of the purchase. 

The transactions  will be converted based on the rate of the day the transaction posts to your account, which can be a few days after the purchase is made. (Every purchase first goes pending and only later posts to your account). On the day the transaction posts to your account, the exchange rate can be either higher or lower than the rate of the day of purchase.

Will it help to convert the currency at a vendor?

When purchasing something abroad, you may sometimes be offered by local vendors to convert the  currency to your home currency, rather than in the local currency (especially common in Europe).

This is called dynamic currency conversion (DCC). Some consumers think that this is a good idea as they will not be charged a foreign transaction fee. 

But this is a big mistake.

The vendor will apply a very high markup when converting the currency- sometimes as high as 7%!

You’re far better off purchasing the item in the local currency and letting your credit card convert the currency especially if your card has no foreign transaction fees. 

Conclusion

Using credit cards abroad is never completely free, even if your card has no foreign transaction fees.

But it is still probably worth using a credit card abroad rather than taking along cash because, first of all, cash is not free either. You still need to pay for exchange fees to exchange the cash to local currency. 

And that’s aside from the point that with credit cards, you will also be getting rewards on the purchases. The rewards received will most likely overpower the network conversion markup, plus it may leave you with some spare change in your pocket (if your card has no foreign transaction fees). 

Another big factor to keep in mind is that when taking along cash, you are risking the cash being lost or stolen. 

So to sum it all up, you’re probably best using a no foreign transaction fee credit card abroad. 

I hope this post taught you that at the end of the day, whichever way you turn, it’s going to be somewhat of a markup spending money abroad.

Going on vacation is cheap, said no one ever:)  

Frequently asked questions
Which card has the cheapest foreign currency conversion rate?
Amex gives you the exact rate without adding a markup. Visa and MasterCard will add a small markup. Use an Amex card with no foreign transaction fees

Was this article helpful?

Sam Sam has nearly a decade's worth of experience educating his many readers on everything credit. Sam spends his days checking out credit cards for a full report, from the minute benefit details to the shebang of welcome bonuses. Plus studying the ins and outs of building proper credit. It’s his favorite pastime and he loves sharing it with others.

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2 Comments

  1. I have Amex Hilton honors and it gives the same rate as it says in google that minute
    But the chase sapphire preferred that I have does change the rates as you said in this post.

    Reply
    • Thanks for sharing the data point about amex. Will add it to post

      Reply

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