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The CARD Act of 2009 eliminated almost all of the traditional tricks and traps that banks used to employ to separate you from your money. However, one of the last remaining fees that banks are still allowed to charge is the foreign transaction fee.
The foreign transaction fee is not a currency exchange commission. In fact, purchases in U.S. dollars made outside the country are usually subject to this fee, meaning you don’t even have to leave home to be ripped off. You’ll also pay the foreign transaction fee on some purchases that are merely processed in other countries.
In these two cases, complaining to your bank about specific charges will often result in them being waived.
Finding a Credit Card without Foreign Transaction Fees
When it comes to choosing a credit card, you should know how foreign transaction fees are calculated.
First, the Visa and MasterCard payment networks impose a 1% fee on the banks that issue the card. The banks then pass on this charge (plus an additional percentage) to the consumer by adding a foreign transaction fee between 1% and 3% of your purchase. American Express usually has a 2.7% fee, though there are exceptions.
Essentially, these fees can offset any rewards or cash back provided by your credit cards. Fortunately, more customers are learning about this legalized scam and choosing credit cards that do not charge this fee. As a result, banks are beginning to drop them, especially on cards marketed to travelers, even if it means they have to absorb the 1% fee from their processor. When applying for a credit card, look at the mandatory fee disclosures to determine what the foreign transaction fee will be.
Here is a comprehensive list of major credit cards that do not have a foreign transaction fee:
- Any Card from Capital One. Capital One has been the leader in this field for as long as I can remember. From their Venture Rewards travel card to their MTV card, none of their products have a foreign transaction fee. I have had a Capital One card for many years as I believe in rewarding good behavior.
- Any Card from PenFed. The Pentagon Federal Credit Union, or PenFed, was originally established to provide financial services for members of the armed forces and their families. As a substantial percentage of service members are based overseas, it only makes sense that PenFed would offer cards with no annual fee. Today, it is relatively easy for anyone to join and take advantage of one of their excellent cards like the PenFed Promise Card.
- Select Chase Cards. Chase doesn’t have a blanket policy of no foreign transaction fees like Capital One and PenFed. Instead, they are taking a piecemeal approach by slowly exempting certain cards that are aimed at travelers. So far, they have extended this policy to the following products: World of Hyatt Card, Chase Sapphire Preferred Card, British Airways Visa, and United Mileage Plus Club Visa Card. Of these cards, I am a big fan of the British Airways credit card for the great sign up bonuses and the Chase Sapphire Preferred card with Chase’s innovative Blueprint payment program.
- American Express Platinum and Centurion. Just as consumers were starting to catch on to the foreign transaction fee scam, American Express actually had the gall to increase their fees from 2% to 2.7% on all of their cards in 2008. But in 2011, they eliminated these fees on their two most high-end products: the American Express Platinum card and the American Express Centurion cards (a Money Crashers partner). The Platinum Card has an annual fee of $450 and the Centurion card is only offered by invitation to people who spend well over six figures a year with American Express.
- Citi ThankYou Premier Card and ThankYou Prestige Cards. Citi has recently dropped their foreign transaction fees in a move to win over travelers in the know.
- Some Credit Unions. Like PenFed, there are other credit unions that do not charge this fee. Every state, most universities, and many large companies have credit unions. At the very least, your credit union will probably only charge the 1% fee the Visa and MasterCard networks impose on them.
- Some Smaller Banks. Like credit unions, small banks are always trying to differentiate themselves from the national behemoths by providing more value to their customers. Check to see if your neighborhood banks offer a credit card without a foreign transaction fee. You may be pleasantly surprised.
Other Tips to Avoid Foreign Transaction Fees
- Use your bank’s international partners. When using a debit or ATM card while traveling, use your bank’s international partners to benefit from zero or low fees. Ask your bank for a list of partners before you depart.
- Look for the lowest fees and best exchange rates abroad. If you will be exchanging U.S. currency abroad, look out for local bank fees and unfair conversion rates. Once you arrive at your destination, examine your options for the lowest fees and best exchange rates.
- Request a refund of the fees. If you do incur credit card foreign transaction fees, a great trick is to simply call your credit card’s bank when you return and request that the foreign transaction fees be refunded. As banks have been the subject of ongoing litigation for failing to properly disclose these fees, they are eager to placate dissatisfied cardholders.
- Beware of dynamic currency conversion. Watch out for a scam called dynamic currency conversion which takes place when a merchant chooses the option for you to pay your bill in your home currency. By doing so, the merchant receives a kickback from its credit card processor while also providing you with a horrible exchange rate – often 10% worse than the current rates. The rate is not disclosed and the scam plays on people’s desire to see the bill in their home currency. These services claim to benefit consumers by taking out the uncertainty of what the item will cost, but instead ultimately costs more in the end. To add insult to injury, your credit card company will still charge you its foreign transaction fee. Merchants are supposed to give you the option for dynamic currency conversion. Still, there are cases where they give customers very little choice, especially when there is a language barrier. If you are ever given the option to pay in U.S. dollars instead of the local currency, always say no!
Using Traveler’s Checks Abroad
Traditionally, people took traveler’s checks with them so they would have access to cash during their trip. Today, ATM machines have made these products largely obsolete. With an ATM withdrawal, you receive your bank’s exchange rate, which is normally very good. With a traveler’s check, you are subject to the rate offered by the merchant. While traveler’s checks can be replaced if lost or stolen, so can your ATM card. Finally, a traveler’s check or an ATM card is no substitute for the many purchase and fraud protections offered by credit cards, especially the chargeback.
Banks are experts at developing new ways to charge their customers fees without them ever noticing. In this respect, the foreign transaction fee has been one of their most successful innovations. It must be terrible for them to realize that customers are learning about these fees and demanding credit cards without them. By limiting your overseas payments to cards that do not charge this fee, you’ll save money and send a powerful message to banks that they can’t pull a fast one on you any longer. If you don’t already have one, get a card that doesn’t charge a foreign transaction fee and don’t leave the country without it!
Do you have any additional tips or experiences related to foreign transaction fees?
Editorial Note: The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author's alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.