Foreign Transaction Fees: What Are They and How Can You Avoid Them?

A foreign transaction fee is basically what your credit card issuer charges when you use your card to make a transaction through a foreign bank or in a foreign currency. When going on an international trip and you take your credit card, or if you even use your credit card to buy something online from a merchant overseas, you will often be required to pay a foreign transaction fee of about 3% or even more. For instance, if you go on a vacation abroad and spend $5,000, you’ll pay about $150 in foreign transaction fees!

Foreign Transaction Fees: What Are They and How Can You Avoid Them?

What Is a Foreign Transaction Fee?

There are many credit cards on the market that provide a better currency exchange rate compared to a money-changing outlet overseas. Most U.S. credit cards charge a foreign transaction fee doubled as an FX fee. These foreign transaction fees are usually 3 or 4 percent and can add up in a matter of a short time.

What everyone should keep in mind is that every credit card is different. Do not be surprised if two cards from the same bank come with different foreign transaction fees. For instance, if you look at the Chase Bank credit cards, the Sapphire Preferred card is an excellent choice for international travel, and it comes with zero foreign transaction fees, whereas the Chase Freedom card comes with the fee. The latter choice is a great card, but you might not want to take it with you on your next international vacation because of its 3% foreign transaction fee.

Will a Foreign Transaction Fee Be Refunded if I Return an Item?

This will largely depend on your card issuer. If you return an item you brought from a retailer abroad, it is up to the bank to determine whether they refund the fee or not. It is essential to keep in mind that the bank will first value the item for which they are determining the amount to refund. Always check with your bank in case you want to return the item to confirm if your fee will be refunded or not.

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How to Avoid Paying a Foreign Transaction Fee

Consider using traveler’s checks. These allow you to spend without having to worry about incurring extra foreign transaction fees; this, however, might not be accepted in some destinations. With these traveler’s checks, you are guaranteed of safety, especially against loss and theft, and what’s more, it’s easy to replace them – usually within 24 hours.

Pay in cash. The ideal way you can avoid these fees is by using cash. If you plan to carry with you large sums, consider taking only what you need. As a tip, you might want to hide some of it in a safe or your suitcase once you reach your intended destination. This will give you back up in case you lose some cash.

Use a card that comes with no transaction fee. There are so many credit cards that have fantastic travel perks and also come with no transaction fees – for instance, TD Bank, Charles Schwab, and Discover. Note that credit cards are different from a debit card, and the latter will help you save since it is your hard-earned cash.

Conclusion

Whereas it’s convenient to travel abroad with a credit card, it is essential to find out if your card comes with foreign transaction fees. It is vital to also weigh the costs of fees against the currency exchange rate and decide which option best fits you.

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