What Are Foreign Transaction Fees and Currency Conversion Fees?

Depending on your card’s terms and conditions, you may be charged a foreign transaction fee when making a purchase overseas. This fee consists of two parts: a currency conversion fee and a card network fee (Visa, Mastercard).

Card networks apply an exchange rate and often add their own markups to the market rate. With dynamic currency conversion, you’ll see the cost of your transaction in dollars at the point of sale.
What is a currency conversion fee?

A currency conversion fee is a charge that can be levied when using a credit or debit card to make a purchase in a different currency. This fee can be charged by either the payment processor or the credit or debit card issuer. It is often mistaken for a foreign transaction fee, but they are actually two separate fees.

A foreign transaction fee is levied by a credit or debit card issuer when a purchase is made overseas or online with a merchant that does not accept your home currency. These fees are typically between 2% and 3% of the purchase amount. The credit or debit card networks (Visa and Mastercard) also impose exchange rates on these transactions that may be slightly higher than what you would get in the market, and they provide calculators you can use to check those rates.

However, many of the same companies that levy foreign transaction fees also offer a service known as dynamic currency conversion, or DCC. This allows merchants to display prices in your home currency at the point of sale, so you can see right away how much you are paying. While this may seem convenient, it usually comes at a cost: one European study found DCC exchange-rate markups to be anywhere from 2.6% to 12% higher than what Visa and Mastercard would charge.

In addition, DCC charges a fee to the merchant—which can be as much as 1% of the transaction amount. These fees are typically passed on to the customer and can add up quickly, especially if you are making frequent purchases in a different currency.

In contrast, a foreign transaction fee is levied by your credit or debit card issuer when you make a purchase in a different currency. These fees are generally between 2% and 3% of the purchase or cash withdrawal amount. The foreign transaction fee is sometimes included in the currency conversion fee, but it is often listed separately on your card statement. This can be a bit confusing, as both types of fees can significantly increase your costs, so it’s important to understand the differences and how they work before traveling or shopping abroad.
What is a foreign transaction fee?

A foreign transaction fee is a charge imposed by a credit card or debit card issuer whenever you make a purchase with a foreign merchant or in a currency other than your own. Depending on your card, this can amount to anywhere from 1% to 3% of the total purchase. Credit card issuers typically include these fees in the Schumer box of their terms and conditions, which can be found online through your account or within the disclosures when you apply for a card.

In addition to the mark-up by your card’s issuer, payment processing networks like Visa, Mastercard and Discover can also tack on their own international fees. These fees are usually less than the mark-up charged by your card issuer, but they can still add up. It’s a good idea to look for cards with no foreign transaction fees, which are increasingly common.

While these charges were once a necessary evil to defray the costs associated with making and clearing international payments, they are now becoming less of an industry norm. As a result, some card companies now offer foreign transaction fee waivers for select customers. In addition, many consumers are choosing to avoid cards with foreign transaction fees altogether, especially when shopping online from vendors in a different country.

For those who do choose to carry a card that does charge a foreign transaction fee, it’s important to know how these fees are calculated. According to the Consumer Financial Protection Bureau, a foreign transaction fee is a combination of two charges: the card’s network’s currency conversion rate plus its own set foreign transaction fee.

Generally, the network currency conversion rate is a small markup on the current exchange rate between your card’s home currency and the foreign currency used to process the transaction. Your card issuer’s foreign transaction fee, on the other hand, is a predetermined percentage of each transaction. These fees are generally listed under the “Pricing and Terms” or “Rates and Fees” sections of your card’s terms and conditions. These fees should be clearly defined in the Schumer box or elsewhere within your terms and conditions. 문화상품권 현금화 불법
What is the difference between a currency conversion fee and a foreign transaction fee?

When it comes to credit card fees, confusion can arise because there are multiple types that might apply to a single transaction. Two specific ones that cardholders might encounter are foreign transaction fees and currency conversion fees. Both are sometimes referred to interchangeably, but they’re actually different things.

A foreign transaction fee is a per-transaction charge assessed by your credit card issuer that’s added to the cost of a purchase made with a card while traveling abroad or shopping online from a foreign merchant. This fee typically runs 2% to 3% of the dollar amount of the purchase or withdrawal. Card issuers decide whether or not to levy this charge and how it’s calculated.

For example, if you’re in Paris and buy $1,030 worth of clothes from a department store with your Visa, you’ll likely incur a foreign transaction fee of 3% of the total purchase amount. That’s because the card network considers this a foreign transaction since the merchant is outside of the U.S.

Some card issuers also add their own fee on top of the transaction network’s charge, which can further increase your overall costs. Fortunately, there are still some card issuers that don’t do this and will simply absorb the network fee.

Card issuers often tack on a currency conversion fee on top of any foreign transaction fees they may leach on their cardholders, which is why you should pay close attention to the details of your card’s terms and conditions. In many cases, card companies will list these fees in a general “Fees” section on their website.

In addition to paying attention to card terms and conditions, you can avoid foreign transaction fees by making purchases in the local currency whenever possible. Alternatively, you can download a currency exchange app on your phone to see the current rate before you make a purchase so you know what you’re paying for in USD.

Some merchants will offer to convert a purchase into USD for you before processing the payment, but that’s usually not the best option. Both Feddis and Fillet advise cardholders to politely decline this offer, as it will come at a higher price than letting the card’s payment processor do the work.
How can I avoid a currency conversion fee?

Many travelers returning from vacation are greeted with a groaning inbox and sand in their clothes—but the worst surprise of all can come when they open up their credit card statement to see that they paid almost 3% for the trip they just took. That’s because many cardholders pay a foreign transaction fee and a currency conversion fee each time they use their card overseas.

Credit card networks charge a fee (usually around 1% of the total transaction amount) for processing international transactions. That fee is then passed on to the card issuer, who adds their own additional currency conversion fee (usually between 1% and 3%). So a foreign transaction and currency conversion fee can add up pretty quickly.

To avoid these fees, choose to have your purchase charged in the local currency when possible. This way you know exactly how much you’re paying, and it’s also less likely to be subject to dynamic currency conversion—a sneaky method that some merchants use to encourage customers to pay in dollars instead of their home currency while abroad.

Some cards charge no foreign transaction fees at all, and others waive them for certain types of transactions (like travel-related purchases). In those cases, it’s important to read the fine print carefully to make sure you don’t get caught off guard.

If you’re not sure whether your card charges foreign transaction fees or not, take a look at the card terms on its website. Under the Truth in Lending Act, credit card companies are required to highlight any fees that they impose. You can usually find the fees in a general fees section of the terms and conditions page.

There are other ways to avoid foreign transaction and currency conversion fees, too. For example, you can avoid them by paying with cash in the country you’re visiting. But that won’t earn you any rewards and could cost you more than you think at some hotels, airport kiosks, and other places where currency exchange is often expensive. You can also try to only withdraw cash from an ATM that’s affiliated with your bank, as these will typically have lower fees than other ATMs.