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Foreign Transaction Fee: What are they and How to avoid


Mar 13, 2023

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From flights and hotels to food and sightseeing, the costs of traveling can quickly add up, especially if you’re planning an international trip. However, one travel expense that you may not have factored into your budget is a foreign transaction fee.

These charges, which can range from 1 to 3 percent of each credit card transaction, apply whenever you use your credit card to make purchases outside of the United States. One of the easiest ways to stop these costs from quickly adding up while you’re away is to select a card with no international transaction fees. In this article, DNBC Financial Group’s experts will help you look at a foreign transaction fee in more detail, along with how to avoid them.

Foreign Transaction Fee: What are they & How to avoid

Foreign Transaction Fee: What are they & How to avoid

What is a foreign transaction fee?

A foreign transaction fee is a fee charged by credit card companies when you use your credit card to make a purchase outside of your home country. This fee is typically a percentage of the total purchase price, usually around 3%, but can be as high as 5% or more. For example, if you make a $100 purchase while traveling abroad, you may be charged an additional $3 or more in foreign transaction fees.

Is it the same as a conversion fee for currencies?

It is important to distinguish between a foreign transaction fee and a currency conversion fee. Although both can happen on international transactions, and even on the same purchase, they are distinct from one another. When you ask to have your transactions shown to you in dollars, “hidden” costs are “hidden” costs that are applied.

For example, if you use your credit card to purchase a sweatshirt in Ireland for 40 euros, the merchant’s point-of-sale terminal may offer you the option of viewing and paying the transaction amount in dollars. Though knowing that the sweatshirt will cost you nearly $50 due to the current foreign exchange rate is useful, you can do the math yourself and request that your transaction be paid in the local currency. This will save you from paying a currency conversion fee, which is typically 1% of the purchase price.

Why do credit card companies charge foreign transaction fees?

Credit card companies charge foreign transaction fees to cover the cost of currency conversion and processing fees. When you make a purchase in a foreign currency, the credit card company has to convert that currency into your home currency. This conversion process comes with fees and charges that are passed on to the consumer in the form of a foreign transaction fee.

In addition to currency conversion fees, credit card companies also incur additional processing fees when you make purchases outside of your home country. These fees can be higher in countries where credit card fraud is more common or with more complex payment processing regulations.

How to avoid foreign transaction fees

Foreign transaction fees add nothing to the cost of your purchase. With a bit of planning, you can eliminate or reduce the prices you’ll pay. To get you started, here are a few ideas:

What credit cards have no foreign transaction fees

Applying for a card that does not charge foreign transaction fees prior to your trip or overseas purchase is an excellent way to avoid extra fees while traveling. If you’re thinking about getting a new credit card, make sure it doesn’t charge any foreign transaction fees. Just because an issuer mentions a foreign transaction fee does not imply that your credit card will charge you one.

Before you leave, exchange your money

If you decide to travel primarily with cash, exchange your US dollars for the currency of your destination before leaving the US. This is more convenient and less expensive than waiting until you are abroad, and it may cost less than foreign transaction fees.

When exchanging money abroad, you may encounter difficulties, especially if you are unfamiliar with the country. When changing currencies, you may encounter long wait times, difficulty locating a nearby currency exchange, or face exorbitant fees.

Avoid Dynamic Currency Conversion

When using your credit card abroad, you may be asked if you want to use dynamic currency conversion (DCC). This allows the merchant to convert the purchase price from the local currency to your home currency. While this may seem convenient, it often results in a less favorable exchange rate and additional fees. It’s usually better to decline DCC and pay in the local currency.

Shop around for the best exchange rates

When exchanging currency, it’s important to shop around for the best exchange rates. Banks and exchange bureaus often charge different rates, so it’s worth doing some research to find the best deal. You may also want to consider using online digital platforms, such as DNBCnet App, which often offer lower fees and the best exchange rates than traditional banks.

About DNBC Financial Group

The DNBC Financial Group is committed to simplifying international financial transactions. We have quickly grown to serve people and businesses all over the world by lowering the cost of sending and receiving money internationally, collecting payments from foreign clients, transferring money  between foreign subsidiaries, and reducing the risk of currency changes.

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Note: The content in this article is for general informative purposes only. You should conduct your own research or ask for specialist advice before making any financial decisions. All information in this article is current as of the date of publication, and DNBC Financial Group reserves the right to modify, add, or remove any information. We don’t provide any express or implied representations, warranties, or guarantees regarding the accuracy, completeness, or currency of the content within this publication.