Understanding Foreign Transaction Fees
Traveling, if you were to ask just about anyone, they have a destination they’d like to visit. It is on almost everyone’s bucket list to travel, and most of it is to international destinations. However, if you plan to pay with credit cards, you have to watch out for foreign transaction fees. These can add up quickly, depending on the card, and you want a card with a small or no fee. If you have the Capital One card, for example, they never charge foreign transaction fees. This simple fact can save you hundreds if you travel a lot. This article will explain what foreign transaction fees are. We’ll also talk about what, exactly counts as a foreign transaction fee. We’ll also touch on if it counts towards rewards if you have a rewards card.
What is a Foreign Transaction Fee?
You’ve probably heard of foreign transaction fees and credit cards. But, do you know what they are or how they can add up? A foreign transaction cost is added to your bill if you buy something internationally. If you purchase something and it goes through a non-US bank, they will add this fee. Also, if you pay for something with a currency that isn’t the US dollar, you’ll be charged. You see this fee a lot with online purchases and travel. The standard rate is 3 percent for each thing you buy.
What Makes up a Foreign Transaction Fee?
There are two parts to foreign transaction fees. The first part of the fee will come from your credit card’s network like Mastercard or Visa. The second part of the fee will come from the issuer like Chase or Capital One. You will see a range from two percent to three percent depending on the card and the issuer. For example, say you go traveling internationally for a few weeks. In this time, you spend $8,000, and you have a three percent foreign transaction cost. When you get your bill, you’ll have an additional charge of $240. This fee is just for using your card outside of the United States.
Your card issuer will take conversion rates into account when they calculate this fee. If you purchase something for £25, it won’t cost $25 US dollars. Your total will be $29.40 US dollars, and your foreign transaction costs will be calculated using this amount. Now you see how this can add up quickly. Remember that it will also be applied if you buy from a company based in another country.
Do Foreign Transaction Fees Count Towards Rewards?
If you have a rewards card, you know you can get rewards if you spend x amount. Your foreign transaction fees could have the potential to add up quickly. Unfortunately, they don’t count toward earning rewards points or cash back. Say you go out to dinner and spend $150. A fee or three percent is added, bringing your bill to $154.50. You will only get cash back rewards on the originally $150. Additionally, if your fee is three percent, it can negatively impact your rewards.
Other Fees You Should be Aware of
Aside from a foreign transaction fee, there is another fee to watch out for. If you’ve ever traveled, you know it’s expensive to exchange your money. International banks and ATMs will add a foreign conversion fee. This fee can be harder to spot because they don’t bill it separately. This fee differs from foreign transaction fees in one major way. Your card’s payment processor adds this fee to your balance. It can range from one percent to three percent as well.
If you have Visa or Mastercard, you’re looking at roughly one percent for every dollar you spend. To put it in perspective, consider the previous scenario. You travel internationally and spend $8,000. Your foreign transaction fee is three percent. This works out to $240 for just using your card. Now let’s say you have a three percent conversion fee as well. This is another $240 added to your balance. So, just for using your card internationally, you’ll be charged an additional $480.
If you plan to travel and don’t want this fee, you have options. You can apply for credit cards with no foreign transaction fees, like Capital One. Capital One also doesn’t charge foreign conversion fees for its card holders, on any of its cards. If you apply for a new card, ask about their foreign conversion fee. If it’s more than one percent, keep shopping around. It’s also a good idea to bring cash with you. Not all places accept credit cards. You should have some cash on hand. Cash is a bit riskier to carry, so space it out on your person. Don’t keep it all in one place because theft is common.
This article has gone over what a foreign transaction fee is. We touched on what goes into making this fee. We talked about how this works if you have a rewards card. Finally, we discussed other fees and alternative options you have. Traveling abroad can be expensive, but you can find travel discounts. If you plan to travel, check into Capital One, the savings alone are worth it.