May 25, 2022

Best No Foreign Transaction Fee Credit Cards for December 2021

Table of Contents What are foreign transaction fees?How much are foreign transaction fees?Currency conversion fee…

What are foreign transaction fees?

A foreign transaction fee — sometimes called an FX fee — is a fee charged by your credit card issuer when you make a foreign purchase. Most often, this means purchases made in a foreign currency, which is anything other than U.S. dollars (USD). However, it can also occur with transactions that route through foreign banks, regardless of the currency used.

How much are foreign transaction fees?

As with other transaction fees, like balance transfer or cash advance fees, foreign transaction fees are charged as a percentage of the transaction. Cards with foreign transaction fees will typically charge between 1% and 3% of the total transaction amount.

For example, say your card charges a 3% foreign transaction fee. If you make a purchase worth $100 while in another country, you could be charged a $3 foreign transaction fee.

Foreign transaction fees are typically charged after the purchase is converted to U.S. currency. You may get a receipt from dinner that says 85 euros, but see a $103 charge on your card. This is from the initial purchase — 85 euros is approximately $100 at current conversion rates — plus the 3% foreign transaction fee.

You can find your card’s foreign transaction fee listed in the terms and conditions. It will be in the Schumer box along with your other rates and fees. If there is no line for the foreign transaction fee, this typically means the card has a 0% fee.

Currency conversion fee vs. foreign transaction fee

In general, card issuers charge foreign transaction fees because of the extra processing required for purchases made in other countries or dealing with foreign banks. Another reason some banks charge FX fees is to cover the additional risk of moving money from country to country.

One common misconception is that the foreign transaction fee is the same as the currency conversion fee. This isn’t — entirely — the case. The foreign transaction fee charged by your issuer may include the currency conversion fee, but the issuer can also add on its own fee.

The credit card network, not the card issuer, is typically responsible for converting your purchase. Networks usually charge a 1% fee for this. Cards that don’t charge foreign transaction fees often absorb that fee as a feature of the card.

Some merchants may offer to convert the transaction for you using Dynamic Currency Conversion (DCC). However, the DCC rate is often much higher than the typical market rate. You’re almost always better off letting your card network handle the conversion for you. This is especially true when using a travel card that doesn’t charge an FX fee.

How to avoid foreign transaction fees

The best way to avoid paying foreign transaction fees is to choose a credit card that doesn’t charge them in the first place. Whether your credit card charges them can vary by issuer and by card.

Capital One, for instance, does not have any cards with FX fees. Neither does Discover. Other issuers may charge foreign transaction fees for some cards, but not others.

In most cases, travel rewards credit cards don’t charge foreign transaction fees. Even travel rewards cards with no annual fee will often forgo FX fees. Therefore, the best credit cards for international travel will often be cards specifically marketed as travel cards or travel rewards cards.

You may think you can avoid foreign transaction fees by using cash. Well, you’re half right. You won’t be charged an FX fee when using the local currency abroad — but you’ll need to make cash withdrawals at some point.

It’s more than likely your ATM or debit card will charge a foreign transaction fee when you make an ATM withdrawal in another country. Your debit card will also likely charge you a foreign transaction fee for any purchases you make with a merchant while traveling internationally.

Are foreign transaction fees charged for online purchases?

Although foreign transaction fees are most commonly charged while traveling abroad, you may also run afoul of them when online shopping. That’s because you can be charged a foreign transaction fee any time you make a purchase in a currency other than U.S. dollars. Foreign transactions fees can also be charged any time a transaction routes through a foreign bank.

So, if you shop online with a business in another country, you could wind up being charged a foreign transaction fee. This can occur even if the website charges you in U.S. dollars, as the purchase may still route through a foreign bank.

Another common example is when contributing to crowdfunding campaigns operated by a foreign person or company. For example, if you pledge a Kickstarter campaign launched by a user in Europe, you will typically be charged in euros. This could lead to a foreign transaction fee.

How to find the best no foreign transaction fee credit cards

The simplest way to choose the best credit card with no foreign transaction fees is to go with a travel rewards card. Most, if not all, cards advertised for travel will skip the FX fees.

Conversely, cards that are not marketed for travel, such as cash back rewards cards, are more likely to charge foreign transaction fees. The exception is for issuers who don’t ever charge foreign transactions fees, such as Capital One and Discover.

If you travel a lot, a travel rewards card is likely a no-brainer. However, if you’re more concerned about avoiding foreign transaction fees while shopping online, you may want to stick with a cash rewards credit card from one of the credit card companies mentioned above. That way, you can earn rewards on everyday purchases while still avoiding fees on the occasional online purchase in a foreign currency.

The same rules apply when looking for credit cards for students. If you’re heading abroad for a semester, stick with travel rewards cards or cards from a credit card company that has zero foreign transaction fees. If you have no credit history or a low credit score, find a travel card aimed specifically at students.

Of course, while the fees are important, that shouldn’t be your only consideration. You should also make sure the rewards you earn will match with how you’ll be spending your money.

For example, some travel cards only earn bonus rewards points on travel purchases. Others may also earn bonus rewards on dining, which can be great if you plan to sample a lot of the local cuisine. If you plan to hit a lot of museums, look for a card that earns bonus rewards points on entertainment purchases.

Don’t forget to scope out the sign-up or welcome bonus. A great sign-up bonus can be worth thousands of dollars, so it’s definitely worth a bit of comparison shopping.

Many cards have extra benefits beyond the purchase rewards, too. Some of the best travel rewards credit cards will come with perks like airport lounge access or an annual travel credit. If you travel regularly, these extra perks can be well worth any annual fees.

Another thing to consider when comparing credit cards for traveling abroad is the network. Visa and Mastercard are generally more widely accepted. Amex and Discover both have large footprints, but they may not be as universally accepted as their competition.

And on the topic of ease of use, many other countries, particularly in Europe, utilize a chip-and-PIN verification system. In contrast, most U.S. credit cards operate with chip-and-signature verification. While you can still use your chip-and-signature card to make purchases at most places abroad, you may have issues at some automatic terminals.