Foreign Transaction Fees and How to Avoid Them

Everyone knows that foreign transaction fees are the monetary equivalent of a blood-sucking vampire.

Though seemingly small on their own, they can build up incrementally. At worst, they can break the bank.

Global financial institutions just haven’t caught up yet. The world is more globalised than ever before and cross-border transactions are increasingly prevalent — whether you’re an international businessman dealing with overseas clients or a globe-hopping tourist partying in the Maldives.

But you can’t wait for the big banks to reform themselves — you need help now. So what do you do?

Luckily for international travellers, there are many options to consider to avoid foreign transaction fees.

This article at a glance

Foreign transaction fees are charged whenever you make a transaction in a foreign currency or through a foreign financial institution. There are ways to avoid them, including exchanging money before you travel, using fee-free credit cards and paying in local currency.

What is a foreign transaction fee?

Imagine travelling to the Maldives for a well-needed vacation. You went out for drinks. You spent $ 200 (it was a particularly good night). When you receive your credit card bill, you see an extra $ 6.

It’s a small amount on its own. But these pesky charges can pile up and break the bank.

Your trip that supposedly cost $ 3,000 could become $ 4,000 in total due to the foreign transaction fee on every dollar you spent abroad.

Simply put, a foreign transaction fee is charged to your card every single time you make a transaction in a foreign currency or through a foreign financial institution. This fee usually costs from 1% to 3%.

The foreign transaction fee consists of both the network/card issuer fee and the fee charged by your bank on top of the issuer fee. Visa and Mastercard typically charge 1% on international transactions while American Express may charge 2.7%.

What constitutes a foreign transaction?

Purchases made online are also considered a foreign transaction if you bought and paid on a website that isn’t based in the country where your card was issued.

Common purchases include:

• Flight tickets through the foreign website of an international airline
• Using international ATMs to withdraw cash
• Online shopping, where a foreign bank is involved

Here’s how to avoid these hidden expenses when performing foreign transactions.

1. Always exchange currency before you travel

This may seem like a no-brainer, but many travellers don’t bother doing this. After all, one of the biggest perks of owning a credit card is the convenience of swiping or tapping for your purchases — local or foreign.

Of course, there may be times when you run out of local currency or have fees that you did not account for before flying.

Nonetheless, it’s always a good idea to exchange more currency before travelling. After all, you can always exchange the currency back or pass it on to a family member who’s travelling to the same country soon.

Tip: avoid exchanging your money at the airport. The conversion rates are usually the worst at airports.

2. Choose cards with no foreign transaction fees

This is the simplest way to avoid any foreign transaction fees.

However, these types of cards may not be available in your home country or they could contain a fine print of extra annual charges. In short, check the small print before applying for any cards that promise zero foreign transaction fees.

Some common banks that offer fee-free credit cards include Chase, Capital One, and Discover.

You should also consider getting a multi-currency card. These are debit or credit cards that give you better exchange rates.

For business owners making payments to overseas suppliers and vendors, payments can be easier and faster when paired with a multi-currency bank account that allows you to hold multiple currencies. More on that later.

3. Avoid using international ATMs

Always check the fees involved before withdrawing money using an international ATM with your credit or debit card. Fees could include international ATM fees, currency conversion fees, and the home bank’s fees.

How can you avoid this charge? Ask your home bank if there are any partner branches or in-network ATMs in your destination country. Also, always withdraw local currency from ATMs.

If your home bank doesn’t have any partner branches, you should consider making that single trip to the ATM and withdrawing more cash at that time to cover the rest of your trip, instead of making multiple withdrawals at the ATM.

4. Pay in local currency

What most people don’t realise is that when merchants accept credit cards, they may or may not ask if you want to pay in the local currency or the converted currency. Regardless of whether you’re shopping online or in-store, paying in the currency of the country you’re in is always better.

Often, online or physical merchants, and even ATM operators, can convert currencies using a dynamic currency conversion. When this happens, you’re allowed to see the cost in your local currency in real-time and even pay that amount.

Don’t forget that even if you convert the local price to your currency, it doesn’t mean that you’re rid of foreign transaction fees.

For example, if you rent a car using a foreign website, and they give you the option of seeing the rental price in your local currency, that may not mean that the final price you pay is the net price. You could see an extra separate charge on your statement, which will be the conversion fee or foreign transaction fee.

Avoid high forex rates with your business account

Are you a business owner who frequently travels? Silverbird serves international merchants from over 100 jurisdictions offering all-in-one multi-currency accounts enabling you to hold, transfer, and exchange foreign currencies online. Avoid high forex exchange rates and exorbitant foreign exchange rates. Sleep easy in the knowledge that 100% of your money is protected by Tier-1 financial institutions.