Owning a credit card can cost you more than just interest charges. Most card terms and conditions include additional credit card processing fees – including foreign transaction fees. But just what is a foreign transaction fee, and how can you avoid paying them the next time you shop?
What is a Foreign Transaction fee?
A foreign transaction fee is a charge added to a credit card transaction when the purchase is made in a foreign currency or from a foreign merchant. This credit card fee is typically around 3% of the total transaction amount and is designed to cover the costs associated with processing and converting the transaction into the cardholder’s domestic currency.
Can You Be Charged Foreign Transaction Fees in the US?
While foreign transaction fees are usually associated with international travel, most people don’t realize that these fees also apply to some purchases made within the United States. Since foreign transaction fees apply to purchases made through a foreign bank or is in a currency other than the US dollar (USD). This caveat means that many Americans are paying additional foreign transaction fees without even leaving the country.
What Influences the Foreign Transaction Fee?
A few different factors can influence the amount of the foreign transaction fee, including the credit card issuer, the type of card being used, and the location of the transaction. Some credit card issuers may waive the foreign transaction fee for certain transactions, such as those made at merchants that primarily do business in the cardholder’s domestic currency.
Generally, foreign transaction fees are calculated based on the total transaction amount in the foreign currency plus applicable exchange rate fees. The exchange rate fee is a charge added to the transaction amount to cover the cost of converting the foreign currency into the cardholder’s domestic currency. This fee is typically a percentage of the total transaction amount. It is added to the foreign transaction fee to calculate the final cost of the transaction.
For example, let’s say that a cardholder purchases 100 EUR from a foreign merchant using their credit card. The card issuer charges a 3% foreign transaction fee and a 1% exchange rate fee. The total foreign transaction fee for this transaction would be calculated as follows:
- 100 EUR x 3% = 3 EUR foreign transaction fee
- 100 EUR x 1% = 1 EUR exchange rate fee
- Total foreign transaction fee = 4 EUR
Consider a No Foreign Transaction Fee Credit Card
The only way to completely avoid foreign transaction fees is with a credit card that doesn’t charge any. Not all credit cards charge a foreign transaction fee, so it’s worth shopping around to find a card that offers the lowest or no fees. Some credit card issuers offer cards specifically designed for international travel, which may have lower or no foreign transaction fees.
The Costco Anywhere Visa® Card by Citi is an excellent no foreign transaction fees credit card for the Costco member. The card, which doubles as your Costco membership card, earns up to 4% cash back on gas station and EV charging stations, 3% back on travel and dining purchases, and more – all for no annual fee.
The Bilt Mastercard from Wells Fargo is another great option. The card is the first-of-its-kind rent credit card, earning 1X points on rent payments (up to 50,000 points each calendar year), 2X on travel, and 3X on dining. Even better, cardholders can use Bilt Rewards points to cover rent payments through Bilt or towards a future down payment.
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