If you plan on traveling overseas using your credit card, understanding foreign transaction fees is key. These charges typically amount to around 3% and consist of two components: card network fees and issuer fees charged by your card company itself.
Some cards do not charge these fees at all, while others only do so on certain types of purchases. Learn how fees are assessed so you can make smarter credit card decisions.
1. Currency Conversion
As soon as you begin using a credit card abroad, it can be easy to become confused between foreign transaction fees and currency conversion fees. Although similar, they should never be confused – one is charged from your card issuer while the other may be levied by point-of-sale systems or ATM networks using dynamic currency conversion (DCC) technology to convert local purchases to US dollars.
DCC rates tend to be much worse than standard exchange rates, making them wisely avoidable. Foreign transaction fees charged by your card issuer (Visa, MasterCard or American Express) usually consist of a flat 1% fee added into the overall purchase price and vary based on card issuer; some even forgo this charge altogether!
2. Dynamic Currency Conversion (DCC)
DCC (Deliver Currency Conversion) is a service offered by card issuers that enables their customers to pay in their home currency at point-of-sale without converting. However, the exchange rate may be more favourable than what would otherwise be available without DCC; additionally merchants and DCC operators can add their own markup above this DCC exchange rate; although credit card companies must disclose that DCC is being provided and its exchange rate, however they are not required to disclose whether additional markup above currency market rate exists or not.
Though many consumers choose DCC for convenience when comparison shopping, in practice it often costs them more. Furthermore, many incorrectly assume that using DCC will allow them to avoid incurring the foreign transaction fees levied by their card issuer; unfortunately this is not true – both DCC conversion fees as well as card issuer charges still apply!
3. Exchange Rates
When traveling abroad, your credit card may perform a currency conversion. Visa and MasterCard networks such as these typically calculate blended exchange rates from various sources such as wholesale currency markets or government mandated rates and make these rates available to banks which issue cards, who then add their own markups resulting in what appears on your statement as the exchange rate.
Foreign transaction fees consist of two charges from card-issuing financial institutions like Chase or Citi, both known as network fees and issuer fees, combined into the foreign transaction fee which typically ranges between 1%-3% of each purchase made using that particular card. You’ll find these listed under either “Pricing and Terms” or “Rates and Fees.” By understanding how these work and which cards do not charge them, it can help you make wiser credit card choices when traveling abroad.
4. Foreign Transaction Fees
Foreign transaction fees typically range between 1-3 percent of each transaction made outside of the U.S. These charges are applied when cardholders purchase from retailers located abroad in person or online, usually when purchasing from merchants located overseas.
This charge may appear as either a “foreign purchase transaction fee” or a “foreign currency conversion fee” on your credit card statement. Credit cards that waive these fees, like those from Pentagon Federal Credit Union, Capital One, Discover and USAA, do so by either reducing payment network fees like Visa and MasterCard’s or offering their own currency exchange rates. Fees associated with credit card rewards programs also may contain this charge, while payment processors often tack on an additional Dynamic Currency Conversion (DCC) fee, often more than what would otherwise be due in terms of network currency conversion and card issuer foreign transaction fees combined.
