What is a Credit Card Foreign Transaction Fee?

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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 even when you make a purchase that uses a foreign bank.

For example, you might face 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 cost of international travel 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, making the fee 1 and 3% of the transaction 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 premier and travel rewards credit cards don't charge a fee at all and even absorb a portion of the fee charged by payment processing network.

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 find out the exact fee your credit card issuer will charge on foreign transactions.

If you don't have a copy, you can find one on your credit card issuer's website or the Federal database for credit card agreements. Or, call your credit card issuer to learn whether your credit card charges a foreign transaction fee and when you can expect to pay it. (It's a good idea to let your credit card issuer know you'll be traveling overseas so they won't automatically flag your international purchases and fraud.)

Avoiding Foreign Transaction Fees

There are plenty of credit cards that don't charge a foreign transaction fee, so consider one of these before making an international trek. 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 not liable for fraudulent charges as long as you report the theft within a timely manner.