How Foreign Transaction Fees Work

Author: Matthew Jackson

Not all money is created equal. One dollar gets you more than 100 Japanese yen, but less than one British pound, for example. And the quaint coffee shop in the south of France doesn't want your dollars. Even your credit card company might get a little grumpy if you use your card outside the United States: Some will charge you a hefty foreign transaction fee – up to 3%. How do these fees work, and how can you avoid paying them?

How Foreign Transaction Fees Work

It's pretty simple, really – these fees are charged to you when you pay for something with your U.S. debit or credit card outside of the United States. In theory, banks use the fee to cover the costs of exchanging one currency for another, and, according to the American Bankers Association, to mitigate the higher risks of fraud associated with international transactions. Visa and MasterCard charge banks 1% for foreign transactions, which banks usually pass on to the consumer, along with their own fees.

Other than converting your own cash by yourself (which will likely have a fee anyway), there are few ways to avoid the fee.

Credit Card

Before traveling, check with your credit card company to see if it charges foreign transaction fees and how much. Also ask if there are any other fees associated with foreign transactions. You might be able to negotiate the fee. If not, at least you know the rate so you can comparison shop.

Some cards don't charge foreign transaction fees. For a one-time trip, it may not make sense to get a new credit card specifically because it doesn't charge foreign transaction fees. But if you plan to travel abroad regularly, a card without these fees is your ticket to fee-free spending. There are plenty to choose from. Check out our favorites in Top Credit Cards With No Foreign Transaction Fee.


If a travel card without a fee isn't an option for you, using an ATM abroad is your next best alternative. Long before you leave, go to your bank and get all the details. What is the foreign transaction fee? Are there additional fees? Does the bank have partner banks in the country?

Bank of America, for instance, charges $5 per transaction plus 3%. But if you use one of its partner ATMs – Scotiabank when you're in Canada, say, or Barclays in the United Kingdom – you will probably avoid the $5 and only pay the 3%.

Seem a little complicated? It is, and that's why you have to address this issue early enough to weigh all of your options.

No-fee Exchanges Aren't What They Seem

You might find them in or around airports or just about anywhere else there's a booming travel industry but no-fee isn't what it seems. The exchanges might not charge you a transaction fee but they'll get their share by giving you a less-than-favorable exchange rate. (See The Best Places to Exchange Currency.) Stick with your bank or credit card. At least you know the fees you're paying up front.

Other Tips

  • Especially for larger purchases, use your credit card.
  • Only use your debit card to withdraw cash. For purchases, any refunds you might get aren't likely to process right away. If it's going to take a few days, you don't want that money in your bank account unavailable to you.
  • When a merchant abroad offers to charge you in U.S. dollars, instead of the local currency – something called dynamic currency conversion – just say no. The rates are never favorable to you, and you'll still have to pay a foreign transaction fee if your card charges one.

The Bottom Line

There are plenty of cards that charge no foreign transaction fee, but if that isn't an option for you, you'll probably pay the least by using your credit card and paying the foreign transaction fee. Currency exchanges will likely charge you more, and ATMs may come with additional fees. But start your research early and compare your options.

For more on using credit cards when you travel, see 4 Tips For Using Credit Cards Overseas and Credit Cards With Travel Insurance.