How to Avoid Foreign Transaction and ATM Fees

First, what is a foreign transaction fee? It is a fee assessed by a credit card company when a credit card is used to make a purchase in a foreign currency. These fees usually apply to credit card purchases made in foreign countries while traveling, but it can rarely happen when you make online purchases from home and it goes through a foreign bank. The latter is a rare occurrence so we’ll focus mostly on the first one.

handing credit card dcc

Foreign transaction fee are usually around 3%. This fee might consist of a 1% fee charged by the payment processor, such as Visa and Mastercard, plus another 2% fee charged by the credit card issuer, such as Citi or Chase.

Foreign transaction fees are something of an afterthought when applying for a new credit card. Yes, it is nice to see it in the list of card benefits, but it rarely is the main reason for getting a credit card. The good thing is that there’s many cards out there that have no foreign transaction fees, like Amex Gold Delta Skymiles, Chase Ink Cards, Chase Sapphire, Amex SPG etc. So if you’re in this hobby, then most likely one of the cards in your wallet with have no foreign transaction fees and obviously that should be your go to card when you’re traveling abroad. Capital One and Discover cards don’t charge foreign exhange fees.

Dynamic Currency Conversion (DCC)

Just because you have a “no foreign transaction fee” credit card doesn’t mean that you are now safe from foreign fees. Has a waiter ever asked you if you want to pay in local or home currency (let’s say euros or dollars)? Sounds like an innocent question that has to do with convenience, but that convenience comes with a charge. Yes I have researched this topic but the lesson was learned the hard way, when I was getting started and way before I had this blog, while on a trip to Italy.

This is called Dynamic Currency Conversion (DCC). The conversion is provided by a unaffiliated company that acts as a liaison between the merchant, and your credit card provider. They charge around 3% of the purchase price, just to convert your bill to your home currency, in my case, dollars.

In case you haven’t realized it by now, always pay in local currency. By paying in euros (i’ll keep it simple with the European currency by taking my example), you’ll not only avoid this ridiculous 3% charge, but you’ll also avoid a very unfavorable exchange rate.

Most of the time you’ll be charged in local currency anyway or you’ll be asked to chose. But make sure that merchants don’t automatically charge you in dollars. They might be inclined to do so, because they also get a cut from the DCC fee.

The DCC fee will be charged instead or on top of the foreign transaction fee that is charged by your bank. When combined with the poor exchange rates, it always comes out worse, even when substituting your card’s foreign transaction fee.

Foreign ATM Fees

We always look to pay with a credit card, even when abroad, but sometimes you might just need cash. A street vendor of knock off handbags for example, won’t take you Amex card. When taking out cash abroad, most commonly you’ll be charged a flat fee for using an ATM network in another country, plus a percentage of the amount.

There are some options available that will help you avoid international ATM fees. Charles Schwab reimburses any ATM fees from ATM withdrawals worldwide, regardless of the network used. Discover doesn’t charge foreign ATM network fees either, but its acceptance is limited. Capital One 360 doesn’t charge a fee but it notes that MasterCard may add an “adjustment factor” based on the value of a foreign-currency transaction.

One thought on “How to Avoid Foreign Transaction and ATM Fees

  1. great article. I have never been asked this question abroad, and I THINK I’ve always been charged in local currency. i assumed that no fee meant no fee, but i should know better. now i’ll make sure to double check my bills.

    great photo by the way 🙂

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