Visa Card Payment Abroad Assignment

What is a foreign transaction fee?

Travel-related fee now easier to avoid; which cards have them, which don't

By Sienna Kossman  |  Updated: January 10, 2017

Personal finance writer
Statistics enthusiast focused on data-driven content

You just got back from a pricey trip abroad and while reviewing your credit card statement, you noticed the expected airfare, lodging and food charges, but also “foreign transaction fee” charges. What’s that all about?

A foreign transaction fee is a charge, usually 3 percent, that many credit card issuers and payment networks add for each transaction made abroad. Like baggage and passports, foreign transaction fees have been a standard part of international travel for years. However, more cards are doing away with this fee each year, according to CreditCards.com research. [Check out some of the best credit cards with no foreign transaction fees]

That’s good news for travelers who have a fee-free card. However, if you have cards that still charge a foreign transaction fee – or are just unfamiliar with the fee overall – here are the ins and outs of this particular fee and advice on avoiding extra charges when traveling abroad.

What are foreign transaction fees?

Credit card holders are typically charged foreign transaction fees when they purchase items while overseas or when they make purchases that use an overseas bank to process the transaction. 

Why? “Because banks have to convert your money spent into U.S. dollars so they can charge your account,” said Victoria L. Fillet, a financial adviser with Blueprint Financial Planning in Hoboken, New Jersey. That conversion costs money, and some card-issuing banks pass that cost along to consumers in the form of foreign transaction fees.

According to Nessa Feddis, vice president and senior counsel for the American Bankers Association, foreign transaction fees also help banks offset the greater fraud risks associated with international transactions. "There are risks and costs associated with any money conversion,” she said.

Does my card charge foreign transaction fees?

  • Not sure if your credit card will charge you a fee for foreign purchases? Check the card’s terms and conditions.
  • It used to be much harder to find out. For years, the charges were not disclosed, until class-action lawsuits forced a change.
  • In 2006, Visa, Mastercard and Diners Club and their card-issuing banks agreed to a $336 million settlement for hiding foreign transaction fees.
  • As part of the agreement, 10 million consumers got refunds and the banks agreed to disclose the fees.

Foreign transaction fees vary between issuers and cards, but most foreign transaction fees are about 1 to 3 percent of each qualifying transaction. The overall fee is often comprised of two fees: One from the payment networks and one from the card’s issuing bank.

Visa and Mastercard, which handle the transactions between foreign merchants or banks and U.S. card issuing banks, typically charge a 1 percent fee for each foreign transaction. Then, card-issuing banks may tack on their own charges, usually an additional 1 or 2 percent, leaving total foreign transaction fees at 2 or 3 percent, depending on the card and co-branded payment network.

American Express doesn't use the Visa or Mastercard payment system, but on its foreign transaction fee-charging cards, the network typically tacks on its own foreign transaction fee of 2.7 percent.

(See chart below to compare credit card issuers' foreign transaction fees.)

Credit card travel fees are fading away

Good news: Increasingly, consumers – especially wealthy cardholders and frequent fliers – are seeing foreign transaction fee-free card offers.

Some issuers, such as Pentagon Federal Credit Union, Capital One, USAA and Discover, have eliminated foreign transaction fees from all their credit cards.

Other issuers haven't done away with foreign transaction fees entirely, but deleted them from specific cards, a trend CreditCards.com has observed for several years now. Starting around 2010, more banks began courting well-heeled travelers with credit cards that don’t carry this particular fee.

A 2015 CreditCards.com survey of 100 U.S credit cards found while most consumer cards charged foreign transaction fees, 23 cards didn’t. In 2016, the same survey found 39 of 100 cards were foreign transaction fee-free. You can compare cards with no foreign transaction fee on this site.

This trend of disappearing foreign transaction fees is expected to continue, according to industry experts, which is good news for consumers.

“It’s called ‘competition,’” ABA’s Feddis said. “Cards without foreign transaction fees are widely available in a highly competitive market as banks fight to attract and keep customers. For people who don’t travel abroad it may not be important, but there are many for whom it might be very important. So you will see banks respond. It’s the customers who drive the credit card features and terms.”

What about foreign ATM fees?

Many banks still charge foreign transaction fees for withdrawing cash at foreign ATMs, even if foreign credit card purchase transactions can occur fee-free. Some banks waive certain fees if you withdraw money from partner bank ATMs. For example, Bank of America generally charges 3 percent fee to withdraw cash from a foreign ATM. However, if you use an ATM at one of the company's Global Alliance Partners, which includes Barclays, Deutsche Bank and China Construction Bank, the $5 fee is waived, according to the Bank of America website.

Overall, ATM foreign transaction fees can vary depending on the issuing, the card and how you use it. Travelers who withdraw cash from ATMs in the local currency may incur several fees:

  • A flat-rate international ATM surcharge charged by your bank when using an ATM not affiliated with your bank, usually $5, but it may vary.
  • A foreign currency conversion fee charged by your bank, typically a percentage of the withdrawal amount, usually 3 percent.
  • An additional ATM access fee charged by the owner of the foreign ATM you are using.

“It’s different if you have a bank that has international branches or if you have a level of deposit where they don’t charge fees,” Fillet said. “But I think it’s difficult to avoid ATM fees in a foreign country overall.”

As a result, it’s probably best to avoid using case and pay with a credit card – especially if it’s fee-free – instead. “You don’t have to use cash for a lot of things anymore either, depending on where you are going,” Feddis added. “It’s easy enough to pay with plastic and not have to withdrawal cash at all.”

FOREIGN TRANSACTION FEES: WHICH CARDS HAVE THEM
IssuerIssuer feeMC/Visa fee
Total feeForeign ATM fee
American Express
2.7%
N/A
2.7%
2.7% foreign currency withdrawal fee on some accounts
Bank of America
2%
1%3%
$5 usage fee for each non- Global ATM Alliance partner, plus 3% currency conversion fee for each withdrawal, regardless of ATM type
Barclaycard
2%1%3%
3% currency conversion fee
Capital One
None1%, but not passed on to cardholdersNone
3% currency conversion fee for some accounts
Chase2%1%3%
$5 per withdrawal, plus 3% currency conversion fee. Fees waived on some accounts
Citi
2%
1%
3%
3% currency conversion fee for some accounts
Discover
None
N/A
None
None
HSBC
None
None
None
3% currency conversion fee for some accounts
Pentagon Federal Credit Union
None
1%, but not passed on to cardholdersNone
None
USAA
None
None
None
None
U.S. Bank
Not disclosed
Not disclosed
2% of each foreign purchase in U.S. dollars, 3% of each foreign purchase in a foreign currency2% of each foreign ATM advance in U.S. dollars, 3% of each foreign ATM advance in a foreign currency
Wells Fargo
2%
1%
3%
$10 or 5% of each transaction, whichever is greater
Source: CreditCards.com research December 2016
Note: Issuer credit card foreign transaction fees are subject to change and likely vary by card. Please see your card terms for the most accurate and current foreign transaction fee information.
FOREIGN TRANSACTION FEES: WHICH CARDS HAVE THEM

American Express

Issuer fee
2.7%
MC/Visa fee
N/A
Total fee
2.7%
Foreign ATM fee
2.7% foreign currency withdrawal fee on some accounts

Bank of America

Issuer fee2%
MC/Visa fee1%
Total fee3%
Foreign ATM fee
$5 usage fee for each non- Global ATM Alliance partner, plus 3% currency conversion fee for each withdrawal, regardless of ATM type

Barclaycard

Issuer fee2%
MC/Visa fee1%
Total fee3%
Foreign ATM fee
3% currency conversion fee

Capital One

Issuer feeNone
MC/Visa fee1%, but not passed on to cardholders
Total feeNone
Foreign ATM fee
3% currency conversion fee for some accounts

Chase

Issuer fee
2%
MC/Visa fee1%
Total fee3%
Foreign ATM fee
$5 per withdrawal, plus 3% currency conversion fee. Fees waived on some accounts

Citi

Issuer fee
2%
MC/Visa fee
1%
Total fee3%
Foreign ATM fee
3% currency conversion fee for some accounts

Discover

Issuer fee
None
MC/Visa fee N/A
Total feeNone
Foreign ATM fee
None

HSBC

Issuer feeNone
MC/Visa fee
Not disclosed
Total feeNone
Foreign ATM fee
3% currency conversion fee for some accounts

Pentagon Federal Credit Union

Issuer feeNone
MC/Visa fee1%, but not passed on to cardholders
Total fee
None
Foreign ATM fee
None

USAA

Issuer fee
None
MC/Visa fee
None
Total fee
None
Foreign ATM fee
None

U.S. Bank

Issuer fee
Not disclosed
MC/Visa fee
Not disclosed
Total fee
2% of each foreign purchase in U.S. dollars, 3% of each foreign purchase in a foreign currency
Foreign ATM fee
2% of each foreign ATM advance in U.S. dollars, 3% of each foreign ATM advance in a foreign currency

Wells Fargo

Issuer fee
2%
MC/Visa fee
1%
Total fee3%
Foreign ATM fee
$10 or 5% of each transaction, whichever is greater
Source: CreditCards.com research December 2016
Note: Issuer credit card foreign transaction fees are subject to change and likely vary by card. Please see your card terms for the most accurate and current foreign transaction fee information.

How to avoid extra travel costs

Frequent travelers probably know they can get slammed by foreign transaction fees if they use credit and debit cards abroad. However, since it’s now easier to avoid these charges, if you're about to travel abroad, take action before the wheels go up on your foreign flight:

  • Know your card terms. If you can't readily find information about foreign transaction fees, pick up the phone and call the number on the back of your card. The information should be disclosed in your card agreements – a change from the past, when the first time a card user might find out about the fee was when it came in the bill after a trip.
  • Research your overseas bank network. Check to see if your bank is part of a global ATM network that you can use to access cash overseas for free – or at least at a lower cost.
  • Apply for a fee-free card. If you travel frequently, it may make sense to apply for a credit card that does not charge foreign transaction fees.
  • Use only credit abroad. Do not use a debit card in a foreign country, says Fillet. Not only can you avoid paying fees if you rely on a foreign transaction fee-free credit card, but you’ll be protected if something goes wrong with a foreign transaction, Fillet explained. “Say you ordered something in a foreign country, paid for it, but it was never delivered,” she said. “If you have a reputable credit card, they will back you up and fight for you to either get the credit back or the product.”
  • Always pay in the local currency. Sometimes, foreign merchants will offer to convert your purchase to U.S. dollars before you pay with your card. Both Feddis and Fillet advise to politely decline this offer because it may result in dynamic currency conversion costs that you’ll have to shoulder. Instead, let your card’s bank and network convert the currency to U.S. dollars and charge you the set foreign transaction fee – if there even is one. If so, it’ll likely be more affordable. 

See related: Q&A: Options for avoiding foreign transaction fees, 9 tips for traveling with credit cards, Getting the best exchange rate abroad

Three most recent Credit account management stories:


Video: 5 credit card questions to ask before traveling overseas

Getting the best exchange rate abroad

By Carmen Chai  |  Published: July 28, 2015

You're headed overseas for vacation, but you can't tell what your best bet is when it comes to spending. Should you convert some cash at your bank or the airport, withdraw from an ATM once you get there, or try to stick mostly to credit?

To get the best currency exchange rate, swiping your credit or debit card for purchases when overseas is probably your best bet.

Regardless of your credit card issuer, credit card exchange rates are the same across the board because they're determined by the major networks -- Visa, MasterCard and American Express.

"A lot of people are suspicious about tricks and traps credit card companies set in our way, but when you're talking about the best currency conversion rate, it's without question credit and debit and the networks that set the rates," says Joe Ridout, manager of consumer services at Consumer Action, a nonprofit advocacy group dedicated to consumer affairs.

When you swipe your card while abroad, your card's network processes it using a rate that's close to the current market rate and sends the final figure to your issuer, he explains. "It's extremely close to what the true rate is. It's far superior to what you'd get at a bank or a currency exchange shop or if you're changing at the airport," he says.

He says the card network rates are 5 to 10 percent better than those offered by financial institutions such as bank branches that convert currency. It's an even bigger spread when comparing to exchange shops on the street or in the airport.

"If you do it through some money-changing kiosk, rates will be even worse than the banks," warns Rick Ingersoll, founder of the blog Frugal Travel Guy. He's a retired mortgage banker in South Carolina who has traveled to more than 70 countries and took an around-the-world trip with his wife. Each time he travels, he relies on his credit card.

On July 17, for example, according to the market rate on XE.com, $1 would get you €0.91. But if you were making the exchange at a Travelex airport kiosk, you'd only get €0.79. You'd also face a $9.95 fee if you were exchanging less than $600.

Visa's exchange rate comes much closer to that listed on XE.com (you can check Visa's exchange rates with this calculator and MasterCard rates with this one). A €100 meal would cost you $109.63 on your Visa, while the market would convert €100 into $108.48.

How credit card conversion rates are set
Ridout suggests that Visa and MasterCard are able to secure such competitive rates because they have lower overhead costs than, say, an exchange kiosk that has to be staffed. The networks are also converting currency in large volumes.

Cost of a €100 meal in US$
(Based on July 17 rates)
  • Bank of America: $114.98
  • MasterCard: $111.83
  • Visa: $109.63
  • Market rate: $108.48 (according to XE.com)
How many euros will $1 buy me?
(Based on July 17 rates)
  • Bank of America: 0.8502
  • MasterCard: 0.8817
  • Visa: 0.9036
  • Travelex at JFK airport: 0.79 (+ $9.95 fee for exchanges of less than $600)
  • Market rate: 0.9151 (according to XE.com)

Visa and MasterCard say they give consumers "wholesale currency market" or "government mandated" rates that are set either the day before or on the day the transaction is processed. "Conversation rates are set daily, except weekends and select holidays, for the more than 160 currencies Visa supports," spokeswoman Connie Kim said in an email.

MasterCard says it uses multiple market sources, including Bloomberg, Reuters and central banks, to set exchange rates. "These rates generally reflect either wholesale market rates or government mandated rates that are collected during the daily rate setting process," spokeswoman Flor Estevez said in an emailed response to questions.

"The rate that MasterCard uses for a particular transaction is the rate MasterCard selects for the applicable currency on the day the transaction is processed by MasterCard, which may differ from that applicable to the date the transaction occurred or when it is posted to the cardholder's account," she explained.

Both Visa and MasterCard agree that consumers get the best value by swiping their cards while abroad. "MasterCard can trade currencies in the wholesale market," Estevez explained. "Generally speaking, wholesale market rates ought to be more favorable than retail market rates."

American Express says it doles out a fair market rate to its clients, too. "Unless a particular rate is required by law, we will choose a conversion rate that is acceptable to us for that date. The rate we use is no more than the highest official rate published by a government agency or the highest interbank rate we identify from customary banking sources on the conversion date or the prior business day," spokeswoman Jane Di Leo said in an email.

"This rate may differ from rates that are in effect on the date of your charge. We will bill charges converted by establishments (such as airlines) at the rates they use," she noted.

Pitfalls to avoid
To take advantage of the savings you get by using a credit card abroad, steer clear of these traps:

1. Dynamic currency conversion
When you're making a purchase with your debit or credit card, and the terminal prompts you to choose between U.S. dollars and the local currency, don't opt for the conversion, Ridout says.

This is called dynamic currency conversion. "You sometimes will be offered a prompt or a suggestion by the merchant to convert the purchase into dollars before you buy. You should never do that," Ridout warns.

Choose the local currency and you'll get your credit card's rate, instead of the merchant's rate, which is usually not as favorable.

2. Foreign transaction fees
Credit card currency conversion rates lose a lot of their luster if your card charges a foreign transaction fee. These fees typically range from 1 to 3 percent of the transaction amount. American Express, for example, sets the transaction fee at 2.7 per cent.

When you're talking about the best currency conversion rate, it's without question credit and debit.

-- Joe Ridout
Consumer Action

But a growing number of issuers offer cards with no transaction fees. Chase says a majority of its credit cards don't have foreign transaction fees, including its J.P. Morgan Select, Chase Sapphire Preferred, Marriott Rewards Premier, British Airways Visa Signature, Southwest Airlines Rapid Rewards Premier and United Mileage Plus cards.

All Discover and Capital One credit cards are free of foreign transaction fees, too. For a more complete listing of foreign transaction fees, see "More cards bid farewell to foreign transaction fees." 

3. ATM withdrawal fees
Ridout notes that using your debit card to withdraw cash overseas also offers exchange rates that are nearly on par with the market rate. Just make sure you aren't getting hit with too many ATM withdrawal fees. These are usually a flat rate per withdrawal.

Some banks and credit unions will reimburse you up to a certain amount for any ATM fees you're charged for, Ridout says. Others will waive fees if you use ATMs at affiliated banks, so ask about both options before you go.

Holly Johnson, a personal finance writer and founder of the blog Club Thrifty, goes abroad a few times a year and says she waits to get cash for small purchases until she arrives at her destination. Then, she uses a debit card that waives fees for using certain ATMs and she only withdraws enough to get her through the trip.

After that, she relies on a credit card that doesn't charge foreign transaction fees. "It's less of a hassle to use credit when you're traveling abroad. Almost everywhere you go, they will take Visa, MasterCard or AmEx and you can avoid fees and the dreaded task of changing your money back when you get home," Johnson says.

To be safe, bring two different cards from two different issuers in case one ends up with a fraud warning or a network issue.

4. Cash advance fees
Unless you have no other choice, avoid using your credit card for a cash advance overseas. While the exchange rate will be good, you'll be hit with cash advance fees of 3 to 5 percent on most cards. Plus, interest will begin accruing immediately and the interest rate will be as much as 7 percent above your purchase APR.

See related:6 budget-blowing international travel mistakes to avoid, 5 places with the highest ATM fees 

Three most recent Credit account management stories:


0 Replies to “Visa Card Payment Abroad Assignment”

Lascia un Commento

L'indirizzo email non verrà pubblicato. I campi obbligatori sono contrassegnati *