Foreign Transaction Fees

If you spend any amount of time outside the United States, you might find that using your credit card is handy.  In addition to the usual reasons that you might choose to use credit in the States, it also means that you don’t have to have local currency to make a payment.  Be sure, however, that you understand how your credit card issuer determines the exchange rate, and what foreign transaction fees will apply.  Choosing the right card can save you money, especially if you are overseas for a full tour or extended trip.

The first thing to consider is the foreign transaction fees.  Visa and Mastercard charge a 1% foreign transaction fee and individual card issuers may add their own fees.  I have seen total fees as high as 3% (and I’m sure there are some cards for whom the total is higher.)  I checked with my three credit card holders:  one (Pentagon Federal Credit Union) charges a 2% foreign transaction fee, the other two (USAA and Navy Federal) charge 1% foreign transaction fees.  If you are traveling a lot, or making large purchases, that 1% difference could really add up.

There are some card issuers that absorb the Visa or Mastercard 1% and do not charge any foreign transaction fees, Capital One is one that is popular.  I don’t particularly care for Capital One as a bank and I wouldn’t go get a Capital One credit card just to avoid a 1% transaction fee.  If you already have a Capital One card though, it might be worth checking to ensure that they are still offering no foreign transaction fees.

The second thing to consider is how the issuer calculates the exchange rate.  This information is a lot harder to track down.  The USAA rep with whom I spoke said it was based on the Fed rate, which I don’t think actually exists.  (The Fed used to report the going rates daily but they discontinued this service in 2008  The NFCU rep with whom I spoke said that it was based on Wall Street but admitted that this was not her area of expertise.  She did state that the conversion is based on the rate the day before the transaction posts.  In my email conversation with Pen Fed, they did not address the exchange rate.  I have heard rumor that some banks charge their own, special exchange rates that can add significantly to the purchases.  At this point, I’m going to have to trust that NFCU and USAA are treating their customers right and providing the best exchange rates possible.

If you are going to be overseas, check with your credit card issuer to see if there is a particular product that will save you money.  Please keep in mind that this information can change at any time and may not be current when you read it.  The point is:  check with your card issuer!

For more information, see this USA Today article:  Which Credit and Debit Cards Are Best Overseas?

About the Author

Kate Horrell
Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.
  • William

    Usually, the ones that claim “no foreign transaction fees” use a lower (1-2%) exchange rate to make up the difference.

    I had a situation where the foreign vendor advertised a US$ price for their service. I gave them my credit card (which I knew to not be foreign-currency-friendly), and the vendor calculated the published exchange rate and charged my card in foreign currency. 2 days later, the exchange rate went down, so my charged US$ amount was higher. Add the FTT, plus the adjusted exchange rate, and my $40 charge was almost $45!

  • sandy

    Capital one kept on locking my card up when they were informed in advance that I would be out of town it was a hassle to keep on calling them to unlock it and like the other comment by William I am sure their exchange rate makes up for what they do not charge up front. Needless to say I cancelled my capital one after that trip!