Expanded foreign transaction fees for international and domestic purchases

Summer is a great season for traveling. Are you planning a foreign trip? Before waving goodbye and going to a new country, find out what extra fees you will need to pay when using your credit card abroad. They can significantly increase the cost of your vacation because this year many credit card issuers have increased their foreign transaction fees. 

Moreover, nowadays even credit card transactions at home can trigger an additional charge. A lot of banking institutions have expanded their foreign transactions fees to include online purchases from foreign merchants. You may find out that your next online order will cost you more than you expect! 

The best solution is to find out the foreign transaction fees in advance. It will help you determine the right plastic to use and plan your budget appropriately. Otherwise, you could be shocked when you receive your next credit card bill.

A foreign transaction fee explained

For many travelers, credit cards have become a preferred mode of payment due to their flexibility, convenience, great purchasing power and worldwide acceptance. However, keep in mind that this convenience often comes at a cost.

The overwhelming majority of banking institutions charge a foreign transaction fee (sometimes called a currency conversion fee, international conversion fee or international transaction fee) for foreign purchases made with their credit cards, debit and check cards, and ATM cash withdrawals. It means that you will pay a little extra for your camel ride in Egypt, funny t-shirt in Switzerland or souvenirs in France bought with your plastic. 

A foreign transaction fee is typically a percentage of your overall purchase price in U.S. dollars after the foreign currency exchange. For example, you buy a new designer bag costing 100 euro in Italy. It equals about $139 in U.S. currency. The foreign transaction fee is a percentage of the $139.

The foreign transaction fee varies from issuer to issuer, as do the guidelines for determining when this fee will be applied. That’s why it makes sense to check how much it will cost you to use your credit cards abroad. With the credit crunch squeezing everyone’s finances, it’s more important than ever to control your expenses.

Many people have three or four plastics issued by different banks, and every card comes with a different foreign exchange fee. You can reduce your trip's overall cost by using a plastic with the lowest foreign transaction fee. 

How much will you pay?


After the lawsuit against Visa, MasterCard, and Diners Club (in 2006 they had to establish a $336 million fund to pay customers for charging fees without their knowledge), all credit card issuers prefer to disclose their foreign transaction fees. 

Basically, a currency conversion fee consists of two parts: Visa and MasterCard charge a standard 1% fee on foreign purchases and the issuing bank adds their own 1-2% fee on top of that. 

For example, MasterCard and Visa charge a 1% fee, and Bank of America has a 2% foreign transaction fee. So if you make a purchase with your Bank of America Visa credit card abroad, you will be charged a total currency conversion fee of 3% (1% Visa fee plus 2% Bank of America fee). 

Citibank, Chase, US Bancorp and Wells Fargo credit cards also have a 3% foreign transaction fee – 1% Visa or MasterCard fee plus their own 2%. HSBC charges a 3% fee as well, except for the HSBC Premier World MasterCard, which is 0%.

Discover and American Express have their own payment processing systems and their own foreign transaction fees. Both companies have raised their charges recently. American Express credit cards now come with a 2.7% foreign transaction fee - up from 2%. Discover charges its credit cardholders 2% after having no foreign transaction fee for international purchases. 

Is there an opportunity to avoid a currency conversion fee completely? Yes - if you have a Capital One credit card. It waives the fee, so you can save a lot of money in the long run if you travel frequently. 

If you withdraw money abroad from an ATM using a credit card, you can be hit either with a cash advance fee or a cash advance fee plus a foreign exchange fee. And many credit card issuers apply a higher APR for cash advances. 

In addition, if an ATM machine is not associated with your bank, you will be probably charged $1-4 per withdrawal depending on your bank. Many ATM machines have a cap on how much money you can withdraw per day (usually $300-500). 

A foreign transaction fee might be difficult for a customer to identify. It is often buried in the converted currency amount. No wonder that some people call it one of the more heinous credit card fees.

A foreign transaction fee for domestic purchases 

For years, banks have charged consumers a foreign transaction fee for using their credit cards abroad if the purchases were made in a foreign currency. However, be careful: shopping online with merchants based outside the United States, or booking hotels or flights with foreign companies may be also subject to additional charges. 

Some banks, including Citigroup, Simmons and Bank of America, have enlarged their definition of foreign transaction. Now they apply international conversion fees for all purchases from foreign merchants regardless of whether that purchase was made in a foreign currency or not. Even if you spend money at a foreign business online, you will see an additional fee in your credit card bill the next month. 

For example, you buy an international airline ticket online in U.S. dollars using a credit card. Just because the merchant is based outside of the United States, the bank will charge you a foreign transaction fee. It doesn’t matter that you made the purchase from the comfort of your home or office.

The changes will make it more expensive for U.S. consumers to buy goods online from foreign merchants. They can also hit travelers going to a country where the purchases are often made in U.S. dollars, such as the Bahamas and some Caribbean countries.

Industry experts say that the expanded international conversion fees are the result of the Credit Card Accountability Responsibility and Disclosure Act of 2009. It has no fee cups or clarification regarding the definition of a “foreign exchange fee.” 

In general, various fees are a good opportunity for banks to cover their financial losses from the inability to apply higher interest rates on credit card accounts. To make a profit, issuers can raise the cost of using plastic overseas, or add more fees for purchases that were not subject to any fees in the past.

On the other hand, the opportunity to make purchases abroad without any problems is worth a fee. There is a cost for doing transactions between two foreign banks. It doesn’t matter whether the cardholder is making the purchase abroad or the cardholder is buying something online from a company based outside the United States.

What is the solution? Discover the foreign transaction fee policy on your credit cards before going abroad and making any purchases from foreign-based companies. It is a good idea to keep this charge in mind to know the true price of the item you are going to buy.