What Is a Credit Card Foreign Transaction Fee?
If you've traveled overseas recently and used your credit card while you were on your trip, you may have been surprised to find a foreign transaction fee on your credit card statement. It's not an error. This is a legitimate fee that many credit card issuers charge and unfortunately, it's not one that you can easily have waived after the fact.
A foreign transaction fee is a fee credit card issuers charge when you use your credit card internationally, or when you make a purchase in a currency other than U.S. dollars. For example, you might be charged a foreign transaction fee if you book a flight through Singapore Airlines, even if you're sitting in front of your computer in Springfield, Missouri. The fee is charged for the convenience of converting the foreign currency into U.S. dollars and makes the price of an international trip more expensive.
How Much Is the Foreign Transaction Fee?
Visa and MasterCard charge a 1% foreign transaction fee and many credit card issuers tack an additional percentage on top of that. This makes your foreign transaction fee between 1 and 3% of the transaction in U.S. dollars, depending on your credit card issuer and payment processing network. American Express charges a 2.7% fee on some of its credit cards and waives the fee on others. Discover doesn't charge a foreign transaction fee on any of its credit cards.
Some premium and travel rewards credit cards don't charge a fee for transactions in other currencies and even absorb a portion or all of the fee charged by payment processing network.
When you're shopping for a credit card, read through the credit card disclosure to find out whether you'll be charged a foreign transaction fee and the amount of the fee. This is key for any credit card you may use for international travel.
How to Check If Your Credit Card Charges a Fee
Credit card issuers are required to disclose the foreign transaction fee to you. In 2006, some of the major credit card issuers had to pay a settlement to cardholders because the issuers hadn't told cardholders they would be charged a fee. Now, these fees are disclosed in the credit card agreement. Read your credit card agreement to discover the exact fee your credit card issuer will charge on foreign transactions.
If you don't have a copy of your credit card agreement, you can find one on your credit card issuer's website or the Federal database for credit card agreements. You can also call your credit card issuer to learn whether your credit card charges a foreign transaction fee and when you can expect to pay it. (While you're on the phone, it's also a good idea to let your credit card issuer know you'll be traveling overseas so they won't automatically flag your international purchases as fraudulent.)
You might even be charged a foreign transaction fee on cash advance ATM withdrawals made in other currencies.
How to Avoid Foreign Transaction Fees
There are plenty of credit cards that don't charge a foreign transaction fee, so consider opening one of these before making an international trip. Both Capital One and Discover have removed the foreign transaction fee from all their credit cards, so if you already have one of these in your wallet, you can swipe on your trip knowing you won't incur any extra fees.
You can also opt to use cash or local currency on your vacation to avoid the fee altogether, but note that carrying cash can be unsafe. If your money is stolen, you can't recover the funds. With a credit card, on the other hand, you're generally not liable for fraudulent charges as long as you report the theft in a timely manner.