Credit Card Foreign Transaction Fees

A foreign transaction fee is a surcharge your credit card issuer applies in two situations. First, when you purchase items outside the U.S., such as shopping or dining out while traveling. Second, you may pay a foreign transaction fee when making online purchases from a non-U.S. retailer that uses a different currency.

The rate varies depending on your bank, but it typically averages 3%. It may not seem significant for a single purchase, but it can quickly impact your wallet if you’re not careful. Understanding how it works, card options and if you can avoid it can help you make smarter financial choices.

You may think a 1%–3% surcharge on a foreign purchase isn’t that much. However, you’d be surprised at how quickly it adds up. Understanding your options regarding foreign transaction fees may help you make better financial decisions.

Exploring various aspects of foreign transaction fees can help you understand how it impacts your finances. These include the variations from one credit card issuer to another, computation and how it could be avoided.

Foreign transaction fee computation has two parts. The first is a network fee, which your credit card network charges, such as Mastercard, Visa, Discover and American Express.

The other segment is an issuer fee. The financial institution that releases your credit card and sets its limit charges it. Incidentally, American Express and Discover are also issuers.

Both of these are computed based on the amount your purchase after it’s converted to U.S. dollars.

It's best to understand how credit card issuers calculate foreign transaction fees. We’ve identified the two components from the previous section: the credit card issuer and network fees. Adding those two gives you your foreign transaction fee.

For example, your network charges 1%, while your issuer charges 2%. By adding the two together, you’ll pay a 3% surcharge, or foreign transaction fee, for each purchase made outside the U.S. or with a non-U.S. retailer.

A foreign transaction fee doesn’t apply to all your purchases. Still, you’ll notice it in specific transactions. MoneyGeek’s guide identifies some of these scenarios and how the fee may affect your finances.

You're traveling to Europe for two weeks. You've purchased your tickets and booked your accommodations using your credit card. Let's say you spent $2,000. Those charges will appear on your credit card statement reflecting the exact amount you paid.

Now, fast forward to your vacation. You use the same credit card, which applies a 2.5% foreign transaction fee, for dining out, going on tours and purchasing souvenirs. Each purchase you make is converted to U.S. dollars, plus the 2.5% fee. When reviewing your statement, you'll see a slightly higher amount than the actual cost of your items. So, during your trip, say you spend $1,000 (after it's converted into U.S. dollars). Because your foreign transaction fee is 2.5%, you'll pay an additional $25.

You may also run into a foreign transaction fee even if you're making your purchase from the U.S. You typically encounter it when shopping online. It is a crucial piece of information because around 263 million people buy items through an online platform.

You find a state-of-the-art laptop from a retailer in Singapore for $1,500 and purchase it through its online store using a credit card with a 2% foreign transaction fee. The amount on your statement is going to be slightly higher than the retail price. That's because you're also paying a foreign transaction fee on top of it. So, after you spend that $1,500, you would pay an extra $30 in foreign transaction fees.

A foreign transaction fee may seem like a small amount to pay on purchases when traveling, but they add up throughout your trip. There are various strategies to avoid these extra costs, such as being selective about which card you use.

Credit cards have different features. Some offer cash back or have no annual fee. There are cards that have no foreign transaction fee, which may be a good option for frequent travelers. This credit card option allows you to make all the foreign purchases you want and only pay for the items’ retail prices.

Meet Bill and Mary, a couple who travels to different countries every year. They've always used the same credit card for all their purchases outside the U.S. This credit card has a foreign transaction fee of 3%.

Last year on their trip to Paris, they spent $2,500 on food, gifts, entertainment and private tour tickets to the Louvre and the Eiffel Tower. When their credit card statement arrived, they were not surprised by the amount they saw because they have regularly paid the additional fees. With their $2,500 spend in Paris, they saw an additional $75. In total, they spent $2,575.

For this year's trip to New Zealand, they decided to use a different credit card — this one doesn't apply a transaction fee for foreign purchases. They continued to spend their usual $2,500. When they received their credit card bill, they were surprised by the difference in the amount due. They didn't have to pay as much because their card didn't have a foreign transaction fee. Instead, they paid just the $2,500 they spent on their trip.

Not all cardholders know how foreign transaction fees affect their purchases. You can learn more through commonly asked questions to help you determine what options are best for your circumstances.

The more you know about credit cards, fees, and terms, the better you will be at finding the best options for your needs. Learn more about these topics in the resources listed below.

• Best Business Cards for No Foreign Transaction Fees: Credit cards with no foreign transaction fees can be highly beneficial for business owners with overseas suppliers. Discover what no foreign transaction credit cards were rated the best in 2023.
• Best Travel Credit Cards: Foreign transaction fees often affect travelers more than other cardholders. Explore the top credit cards to find the best option for your lifestyle.
• Best Travel Credit Cards for No Annual Fee: Traveling frequently for work, several vacations a year, or living abroad are good criteria for travel credit cards. Learn more about the best ones that don’t require an annual fee.
• Credit Card Terms 101: A foreign transaction fee is only one term you may encounter when learning about credit cards. This page helps you become familiar with other phrases you may come across.
• Find the Credit Card that Works for You: Credit cards offer various benefits, including rewards, discounts, and perks. Find out what credit cards offer to find the one that provides solutions to your needs and matches your preferences.
• The Ultimate Guide to Using Credit Cards for First Time Users: If you’re ready to get your first credit card, learn more about the entire process — from application to reading your credit card statement and making payments.