Foreign Transaction Fees Explained: Costs and How to Avoid Them

A foreign transaction fee is a charge, typically up to 3% of the purchase, that a card issuer adds when you pay in a foreign currency or buy from a merchant based abroad. Many US travel cards, and every Capital One credit card, charge none. You avoid it by using a no-fee card and paying in the local currency. The fee can apply whether you are abroad or shopping online from home, so it is worth checking even if you rarely travel.

What is a foreign transaction fee on a credit card?

A foreign transaction fee is the extra amount you pay on top of the converted price of a foreign purchase. The official commentary to Regulation Z, the federal rule that governs credit card disclosures, defines it this way: the transaction is first converted to dollars at an exchange rate outside the issuer's control, and anything charged above that converted amount is a foreign transaction fee.

The fee can be made up of more than one charge. The same commentary gives an example in which the card network charges 1% and the issuing bank adds a further 2%, so you pay 3% in total. You see only the combined figure. Issuers must disclose it in the summary table that comes with a card application, and it is repeated in your cardholder agreement. If that table says "None" next to foreign transactions, you do not pay the fee on purchases.

How much does a foreign transaction fee cost on a trip?

The cost is the fee rate multiplied by everything you spend in a foreign currency or with foreign merchants. At 3%, each $1,000 of spending abroad costs an extra $30. The table uses the two rates you see most often on US cards: 2.7%, charged by the American Express Blue Cash Everyday card, and 3%, charged by cards such as Chase Freedom Unlimited, Citi Double Cash and Wells Fargo Active Cash.

Here is a worked example. Assume you spend $4,000 on hotels, meals and transport over two weeks in Europe, using a card with a 3% fee that earns 1.5% cash back. The fee is $4,000 x 0.03 = $120. The rewards are $4,000 x 0.015 = $60. You end the trip $60 behind, whereas a no-fee card earning the same 1.5% would leave you $60 ahead. The fee usually outweighs the rewards you earn on the same purchases.

Do foreign transaction fees apply to online purchases?

Yes, they can. Discover describes the fee as an extra charge on purchases you make in another country or with a foreign merchant, so an order from a website that processes payments outside the US can trigger it even if you never leave home. Typical examples are overseas online shops, some app and software subscriptions, and flights or hotels booked directly with a foreign company. A price shown in dollars does not guarantee you avoid the fee, because the merchant's location can also matter.

Look through a recent statement for lines labeled as foreign or international transaction fees. If they sit next to recurring bills, moving those subscriptions to a no-fee card is an easy saving.

Which US credit cards have no foreign transaction fee?

Most US travel cards and several no-annual-fee cards charge no foreign transaction fee. Capital One says it does not charge the fee on any of its US-issued credit cards, and Discover also charges none. The figures below come from the card listings we maintain; confirm them in the issuer's pricing table before you apply, because terms change.

If your everyday card charges the fee, you do not need to replace it. A no-annual-fee card such as Capital One Quicksilver can simply be the card you take abroad. If you travel several times a year, compare the rewards and protections on travel credit cards, most of which also waive the fee. Before relying on any single card, check that its network is widely accepted where you are going and pack a second card as a backup.

Should you pay in local currency or US dollars abroad?

Pay in the local currency. When a shop, restaurant or ATM abroad offers to charge you in US dollars, it is using dynamic currency conversion: the merchant's payment provider sets the exchange rate and builds in its own margin. Capital One's guide to foreign fees says dynamic conversion fees may fall between 3% and 12% of the purchase amount. Choosing the local currency lets your card network convert the price instead, and a no-fee card then adds nothing on top.

Visa's consumer guidance says merchants and ATMs should give you the choice to accept or decline conversion and must not choose on your behalf. If you feel pressured, or a receipt shows dollars you never agreed to, Visa recommends declining the conversion and reporting it to your card issuer. Check the currency on the terminal screen before you tap or enter your PIN.

Can you use a credit card at an ATM abroad?

You can, but it is usually the most expensive way to get cash. The Consumer Financial Protection Bureau explains that a credit card cash advance often carries a flat or percentage fee and a higher interest rate than purchases, and that interest starts as soon as you withdraw the money, with no grace period. Abroad, the ATM operator may add its own charge, and a foreign transaction fee can apply to cash advances as well as purchases.

For cash, a debit card from a bank that does not charge for foreign ATM withdrawals is normally the cheaper option. Keep the credit card for purchases.

How do you avoid foreign transaction fees?

You avoid them by planning which card you use before you pay. These steps cover almost every situation:

1. Find your current fee. Look for "foreign transaction" in the pricing table of your cardholder agreement or on the issuer's website.
2. Get a no-fee card before you need it. Allow time for approval and delivery, and remember that an application normally means a hard credit inquiry.
3. Carry two cards on different networks in case one is declined, lost or frozen for a security check.
4. Always choose the local currency on card terminals, in online checkouts and at ATMs.
5. Move subscriptions billed by foreign companies to your no-fee card.
6. Use a debit card, not a credit card, for cash withdrawals.
7. Pay the statement in full. The purchase APRs on the cards above range from roughly 17% to 30%, which costs far more than any foreign fee. Our guide to how credit card APR works explains why.

How do foreign transaction fees work in Canada and the UK?

They work the same way, but the default rates differ. In Canada, a 2.5% fee on foreign currency purchases is standard on most cards, including the TD Aeroplan Visa Infinite, RBC Avion Visa Infinite, CIBC Aventura Visa Infinite, BMO CashBack World Elite and Tangerine Money-Back cards. The Scotiabank Gold American Express and Scotiabank Passport Visa Infinite+ cards are notable exceptions that charge no foreign transaction fee. Our guide to travel credit cards in Canada covers them in more detail.

In the UK, most cards charge between 2.75% and 2.99%. The Barclaycard Rewards Visa and Halifax Clarity cards charge no fee on purchases abroad, and the Santander All in One card waives it too but carries a monthly account fee. See our list of the best UK credit cards for use abroad, and for a wider view of how the markets differ, read our comparison of credit cards in the US, Canada, the UK and Australia.