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The simplest way to avoid foreign transaction fees is to use a credit or debit card that doesn't charge them when you make purchases abroad or from a non-U.S. company. Foreign transaction fees generally range from 1% to 3% of the purchase price, which may not seem like a lot but can add up quickly.
If you're planning a trip outside of the country or frequently buy goods and services from foreign companies, it's worth taking the time to learn how foreign transaction fees work and how you can avoid them. Here's what you need to know.
What Are Foreign Transaction Fees?
Credit card issuers and financial institutions charge foreign transaction fees for purchases you make in a foreign currency. You may incur these fees when using a debit or credit card to buy goods and services abroad, make an online purchase from a non-U.S. retailer or withdraw money from a foreign ATM.
Opting to pay in U.S. dollars instead of foreign currency can increase the amount you owe because the foreign payment provider or bank handles the conversion. This is known as dynamic currency conversion (DCC). While it's helpful to know how much you're paying in U.S. dollars, the DCC fee is typically higher than what your card issuer would charge if you paid in local currency and let them handle the conversion.
How to Avoid Foreign Transaction Fees
Foreign transaction fees are easy to avoid with these four simple strategies.
1. Open a Credit Card That Doesn't Have a Foreign Transaction Fee
Not all credit cards charge foreign transaction fees. Many popular travel credit cards don't have them, for example.
If you travel abroad frequently, getting a credit card with no foreign transaction fee can reduce your costs. Plus, many travel cards provide rewards and other benefits that can be helpful when traveling.
Learn more: Best No Foreign Transaction Fee Credit Cards
2. Exchange Currency Before You Travel
If you don't mind traveling with cash, consider visiting your bank or credit union before setting off on your trip to get cash in your destination's local currency. You'll have to pay a fee, but it'll probably be lower than what you'd pay if you wait until you arrive at your destination or exchange your currency in an airport.
Even if you plan to use a credit card for most of your purchases, having some cash is a good idea because certain merchants may not accept credit cards and others may charge a fee for using one.
Tip: Because you can't replace cash that's lost or stolen, it's a good idea to only carry small amounts with you.
3. Open a Bank Account That Doesn't Charge Foreign Fees
Some banks charge fees for using your debit card to make purchases or ATM withdrawals abroad, but you can avoid them by opening an account at an institution that doesn't.
If you currently bank with an institution that charges foreign transaction fees and don't want to open a new account, ask your bank if it has branch locations, in-network ATMs or partnerships with banks where you plan to travel. You may be able to make fee-free withdrawals in local currency from these locations.
4. Pay With Local Currency
It may seem counterintuitive, but paying in local currency instead of U.S. dollars will usually save you money. When you make a purchase abroad or buy something online from a foreign company (even if you haven't left the country), the transaction has to be converted to the local currency. Either the merchant's payment network or your card issuer can handle the conversion.
When you pay in U.S. dollars, the merchant's payment network handles the conversion and charges a built-in markup that's often higher than what your credit card company would charge. If you pay in local currency, your card network handles the conversion, which typically costs less.
To find out for sure which option is cheaper, check your credit card company's conversion rate and compare it to what the merchant's payment network charges. Visa and Mastercard have online currency conversion calculators that can help.
How to Choose a Credit Card With No Foreign Transaction Fee
Many cards offer fee-free foreign transactions. Here are some tips to find one that fits your needs.
- Prioritize network acceptance. Not all credit cards are accepted everywhere. Choose one that's widely accepted to reduce the risk of not being able to use your card while traveling.
- Think about your spending and travel habits. Travel rewards cards typically come in a few varieties: cash back, general travel rewards and brand-specific rewards. Some have generous welcome offers or offer bonus points on certain purchases. Choosing a structure that aligns with your everyday spending as well as your travel habits will help you maximize rewards.
- Review annual fees. Many travel credit cards charge an annual fee. The rewards, cash back and perks of carrying the card should outweigh the charge. If not, it's probably not your best bet.
- Don't forget about perks. Rewards aren't the only benefit travel credit cards offer. Many have additional perks that enhance their value, such as travel insurance, free checked bags and priority boarding, reimbursement for global entry and TSA PreCheck, access to airport lounges and more.
Frequently Asked Questions
Do Debit Cards Have Foreign Transaction Fees?
It's unusual for a debit card to have foreign transaction fees, but some may. If yours does, consider opening an account with a different institution that doesn't charge them. Otherwise, you could get hit with fees when you make purchases or ATM withdrawals outside of the country or use your card to buy goods or services from non-U.S. companies.
If you don't want to open a new account, consider exchanging currency before you go and asking your bank or credit union if they have international locations, partner with banks abroad or have in-network ATMs at your travel destination.
What Are Currency Conversion Fees?
Financial institutions and payment providers charge currency conversion fees to convert transactions from the local currency to U.S. dollars. They're typically unavoidable when making foreign purchases, but you can minimize them by paying in local currency.
When you pay in local currency, your card's payment network or financial institution will charge the conversion fee, which is usually lower than the fee foreign banks or the merchant's payment network charges when you pay in U.S. dollars.
Is It Better to Use Cash When Traveling Internationally?
Taking some cash with you may be a good idea because some merchants may not accept credit cards, and others may charge fees for credit card purchases. However, traveling with cash is risky because it can't be replaced if it's lost or stolen. If you bring cash with you, take steps to safeguard it.
The Bottom Line
Avoiding foreign transaction fees is easy when you use a fee-free debit or credit card to make purchases abroad. But finding the card that's right for you depends on more than the fees the issuer charges.
You can compare credit cards matched to your credit with Experian to help you sort through credit card offers based on card type, fees and issuer to find one that meets your needs and aligns with your spending and travel habits.