Credit cards are super handy when you’re traveling. They make life easier, make shopping more convenient, allow you to make purchases without carrying so much cash, and paying at restaurants is a cinch.
Credit cards are accepted in so many places, in almost all countries. But with that convenience comes a fee – at least, in most cases it does. When you spend on a credit card in a foreign currency, you’re often charged a foreign transaction fee on each purchase.
So, what is a foreign transaction fee? How are they calculated? And do you have options to avoid them? Read on to find out.
What is a foreign transaction fee?
A foreign transaction fee is a fee charged on purchases made in foreign currencies or that pass through a foreign bank. The fee is usually between 1-3 percent of the spend total (typically 2.5 percent in Canada), added after conversion rates have been applied. Foreign transaction fees differ between credit card companies and even between cards from the same provider.
This is an example of how foreign transaction fees work. Say you’re in Mexico and you use your credit card for dinner. That meal purchase will be subject to a foreign transaction fee. Similarly, say you buy something from a website in the United Kingdom or the United States or France and pay in pounds or US dollars or Euros, that’ll be subject to a foreign transaction fee too. Foreign transaction fees are intended to cover the processing cost of converting your transaction from a foreign currency into Canadian dollars.
Foreign transaction fees occur after your purchase has been subject to conversion. So, let’s say that Mexican dinner costs you 500 pesos. That 500 pesos would first be converted into Canadian dollars at a conversion rate set by the credit card company (conversion rates issued by your credit card provider are not the same as the Bank of Canada conversion rate, they’re higher and can differ from card to card). Then, on the converted total in Canadian dollars, you’d be charged a foreign transaction fee on top.
When am I charged foreign transaction fees?
Foreign transaction fees come into play anytime a transaction passes through a foreign bank. A foreign bank for Canadians is any bank that’s not in Canada, where the currency in use isn’t Canadian dollars. That could be any time you make a credit card purchase while you’re in another country, or any time you buy something online through a merchant located in another country. Sometimes, even if the transaction is charged in Canadian dollars, there could be a foreign transaction fee if the transaction is routed through a foreign bank.
When traveling abroad or making international purchases, credit cards with no foreign transaction fees can be a savvy choice. Foreign exchange fees can add up, significantly impacting your expenses. Credit cards that charge foreign transaction fees typically impose a percentage-based charge on each purchase made in a foreign currency. To avoid foreign transaction fees, consider opting for a credit card that doesn't levy these charges. While some of these cards may come with an annual fee, the savings from avoiding foreign transaction fees can often outweigh this cost, making them a cost-effective choice for globetrotters and international shoppers. By selecting one of these no foreign transaction fee credit cards, you can make your travels and cross-border transactions more convenient and economical.
How are foreign transaction fees calculated?
Let’s take another international transaction as an example. Say you spend $500 US dollars on a special fancy family dinner while you’re on vacation in New York. You pay for the meal with your Canadian-issued credit card, so this meal purchase will be considered a foreign transaction and is subject to a foreign transaction fee. Your final charge could be calculated like this:
Cost of dinner in US dollars (USD) = $500
Credit card company conversion rate to Canadian dollars (CDN) = $682.50
(Actual conversion rate to Canadian dollars, for reference = $680.20)
2.5% foreign transaction fee (CDN) on $682.50 = $699.60 total
In this example, there’s roughly $17 you’re giving to the credit card company on top of your purchase as a foreign transaction fee. (Dollar figures in this example are an indication only and were accurate on April 29, 2023).
That $500 meal is just one example. If you’re on a family vacation in the US for a week and you spend $4000 USD on your credit card on various purchases and activities, you’ll pay almost $140 in foreign transaction fees. That’s nothing to sneeze at – that $140 could be better spent on so many other things (a new pair of shoes, a year of Netflix, some groceries, gas, a nice bouquet of flowers, or anything else that’s for you and not going to the credit card company).
How do I avoid foreign transaction fees on my credit card?
Most credit cards charge foreign transaction fees – but, the good news is, they don’t all charge foreign transaction fees. If you don’t want to pay this extra fee every time you transact through a foreign bank, you need to get yourself a card that doesn’t charge foreign transaction fees.
When searching for credit cards with no foreign transaction fees, they’re usually pretty proud to mention it as a selling point. If you’re looking into different credit card options and a card doesn’t mention “no foreign transaction fees” as a benefit, the chances are that card will charge foreign transaction fees. So look for the cards that mention it in their main marketing bullet points.
What is a no foreign transaction fee credit card?
A no foreign transaction fee credit card, as the name suggests, is a card that doesn't charge you when you make purchases in a foreign currency or from a foreign-based merchant. It can be incredibly frustrating to handle additional fees when you're travelling or running international business operations. With options like the HSBC World Elite® Mastercard® and the Scotiabank Passport Visa Infinite Card, no foreign transaction fee credit cards promise value and economic ease during your overseas adventures.
Which credit cards have no foreign transaction fees?
Foreign exchange fees, often incurred when using a credit card in a foreign currency, can be a significant concern for travelers. These fees are essentially transaction fees applied to currency conversions, and it's important to be aware of them to effectively manage expenses while abroad .Often credit cards that sell themselves as travel credit cards will waive foreign transaction fees as a benefit. Look for cards aligned with airlines or airpoints or hotel chains, or ask your bank which of their credit cards waive foreign transaction fees. You can also shop around online.
And, actually, KOHO has a card that fits the bill, plus another option that launches soon. The KOHO Extra card eliminates foreign transaction fees and includes one free international ATM withdrawal per month, which can help save another fee when you’re traveling. It’s worth considering.
KOHO cards are not technically credit cards. KOHO cards are prepaid Mastercards. You can think of them as credit card alternatives, with similar convenience and accessibility but with fewer fees, lower risk, and no accrued interest to repay. Because they’re prepaid, you only spend what you put on your account, which ensures you don’t overspend and don't have to pay a lot in foreign currency exchange or in foreign exchange fee charges. In addition to the lack of foreign transaction fees and one free monthly international ATM withdrawal, the KOHO Extra card gives you up to 2 percent cash back on purchases, earns you 2 percent interest on cash in your account, and for $7 a month it also helps you build your credit score with KOHO Credit Building.
Why you would want credit cards with no foreign transaction fees?
The primary benefit of such cards is, of course, no foreign transaction fees. This means that your overseas shopping, dining, or even online purchases in USD won't weigh you down with additional charges. By adopting credit cards that offer transparent fee disclosure, you'll have the advantage of keeping your spending in check and managing your budget more effectively. The low fees, coupled with user-friendly features, enhance the convenience during overseas and foreign travel, providing peace of mind and financial freedom.
When traveling abroad or making international purchases, savvy consumers seek credit cards with no foreign transaction fees to avoid additional costs. Foreign transaction fees, also known as foreign exchange fees, are charges imposed by credit card issuers on transactions made in foreign currencies. These fees are typically a percentage of the purchase amount and can quickly add up, especially for frequent travelers. Credit cards with no foreign transaction fees are highly desirable for globetrotters and individuals conducting business overseas, as they eliminate these extra charges. Some credit cards, although they may carry an annual fee, do not charge foreign transaction fees, making them an attractive option for those who frequently travel or make international purchases.
By choosing such cards, consumers can confidently make transactions in foreign currencies without worrying about incurring additional fees, allowing for seamless and cost-effective financial management while abroad.
Finding the best no foreign exchange fee credit card in Canada
When hunting for the ideal no foreign transaction fee credit card in Canada, several elements come into play, inevitably making your choice fit better with your lifestyle and spending behavior. Does the card offer dining perks, or discounted access to gastronomic experiences? How about travel miles, do they reward your exploration spirit? Your regular purchases could be more rewarding if your card offers cash back, while fuel savings may greatly benefit car owners. On top of these, special discounts on shopping and lifestyle services may also tilt the scales in favour of specific cards.
How to Choose the Best No Foreign Exchange Fee Credit Card
Choosing the best credit cards with no foreign transaction fees goes beyond just the absence of foreign transaction fees. Managing foreign exchange fee expenses and foreign currency purchases and charges are vital. To reduce foreign exchange fees and other surcharges, consider the following:
1. Customer Support: Reliable and prompt customer support can make or break your experience with a credit card, especially during times of crises or emergencies.
2. Ease of Redeeming Perks: A card is as good as the perks it offers and the straightforwardness of availing them.
3. Range of Perks: A wide spectrum of perks targeting different spending areas can ensure that the card offers value to you constantly.
4. Other Associated Fees: While foreign transaction fees are nil, being aware of other charges, like annual fees, is important to calculate the net worthiness of the card.
5. Reputation of the Company: Credibility and trustworthiness matter, as you're placing your finances in the hands of the card company.
No foreign transaction fee credit cards offer an excellent opportunity for the avid globe trotter or international shopper in you, saving from extra charges while offering a multitude of handy perks.
Sam Boyer spends, invests, budgets, and writes. He enjoys writing about things he wishes he’d learned earlier — like spending, investing, and budgeting. A journalist originally from New Zealand, Sam has written extensively about consumer affairs, insurance, travel, health, and crime.