Best credit cards with no foreign transaction fees for January 2022
What are the foreign transaction fees?
Foreign transaction fees – sometimes referred to as currency exchange fees – are fees charged by your credit card issuer when you make a purchase abroad. Most often, these are purchases made in a foreign currency other than the United States dollar (USD). However, this can also happen with transactions that go through foreign banks, regardless of the currency used.
How much are the transaction fees abroad?
As with other transaction fees, such as balance transfer or cash advance fees, overseas transaction fees are charged as a percentage of the transaction. Cards with overseas transaction fees will typically charge between 1% and 3% of the total transaction amount.
For example, suppose your card charges an overseas transaction fee of 3%. If you make a purchase worth $ 100 in another country, you may be charged a foreign transaction fee of $ 3.
Foreign transaction fees are typically charged after the purchase is converted to US currency. You can get a dinner receipt showing 85 euros, but see a charge of $ 103 on your card. That’s from the initial purchase – 85 euros equals about $ 100 at current conversion rates – plus a 3% overseas transaction fee.
You can find your card’s overseas transaction fees listed in the terms and conditions. It will be in the Schumer box with your other rates and charges. If there is no line for overseas transaction fees, it usually means the card has a 0% fee.
Currency conversion fees vs. overseas transaction fees
Typically, card issuers charge overseas transaction fees due to the additional processing required for purchases made in other countries or for dealing with foreign banks. Another reason that some banks charge currency exchange fees is to cover the additional risk of transferring money from one country to another.
A common misconception is that foreign transaction fees are the same as currency conversion fees. This is not – entirely – the case. The overseas transaction fees charged by your issuer may include currency conversion fees, but the issuer may also add their own fees.
The credit card network, and not the card issuer, is generally responsible for converting your purchase. Networks typically charge a 1% fee for this. Cards that don’t charge an overseas transaction fee often absorb those fees as a feature of the card.
Some traders may offer to convert the transaction for you using Dynamic Currency Conversion (DCC). However, the rate of DCC is often much higher than the typical market rate. It’s almost always best to let your card network handle the conversion for you. This is especially true when using a travel card that does not charge a currency exchange fee.
How to Avoid Foreign Transaction Fees
The best way to avoid paying overseas transaction fees is to choose a credit card that doesn’t charge them in the first place. Whether your credit card bills them may vary depending on the issuer and the card.
Capital One, for example, does not have cards with foreign exchange fees. Discover either. Other issuers may charge foreign transaction fees for some cards, but not for others.
In most cases, travel rewards credit cards do not charge an overseas transaction fee. Even travel rewards cards with no annual fee will often forgo the exchange fee. Therefore, the best credit cards for international travel will often be cards specifically marketed as travel cards or travel rewards cards.
You might think that you can avoid overseas transaction fees by using cash. Well, you’re half right. You will not be charged a currency exchange fee when using the local currency abroad, but you will need to make cash withdrawals at some point.
It is more than likely that your ATM or debit card will charge a foreign transaction fee when you make an ATM withdrawal in another country. Your debit card will also likely charge you an overseas transaction fee for any purchases you make from a merchant while traveling overseas.
Are overseas transaction fees charged for online purchases?
While overseas transaction fees are most commonly charged while traveling overseas, you can also incur them when shopping online. This is because you may be charged a foreign transaction fee whenever you make a purchase in a currency other than US dollars. Foreign transaction fees may also be charged whenever a transaction goes through a foreign bank.
So, if you shop online with a business in another country, you may be charged an overseas transaction fee. This can happen even if the website charges you in US dollars, as the purchase may still go through a foreign bank.
Another common example is contributing to crowdfunding campaigns run by a foreign person or company. For example, if you sign up for a user initiated Kickstarter campaign in Europe, you will typically be billed in Euros. This could result in foreign transaction fees.
How to find the best credit cards with no foreign transaction fees
The easiest way to choose the best credit card with no foreign transaction fees is to go with a travel rewards card. Most, if not all, cards advertised for travel will avoid currency exchange fees.
Conversely, cards that are not marketed for travel, such as cash back rewards cards, are more likely to charge transaction fees abroad. The exception is for issuers that never charge offshore transaction fees, such as Capital One and Discover.
If you travel a lot, a Travel Rewards Card is probably a no-brainer. However, if you’re more concerned with avoiding overseas transaction fees when shopping online, you might want to stick with a cash rewards credit card from one of the issuing companies. credit cards mentioned above. This way, you can earn rewards on your daily purchases while avoiding charges on occasional online purchases in a foreign currency.
The same rules apply when looking for credit cards for students. If you are going overseas for a semester, stick with travel rewards cards or cards from a credit card company that have no overseas transaction fees. If you don’t have a credit history or have a low credit score, find a travel card designed specifically for students.
Of course, while the fees are significant, that shouldn’t be your only consideration. You should also make sure that the rewards you earn match how you will be spending your money.
For example, some travel cards only earn bonus reward points on travel purchases. Others can also earn bonus rewards on meals, which can be great if you plan to sample a lot of the local cuisine. If you plan to visit a lot of museums, look for a card that earns you bonus reward points on entertainment purchases.
Don’t forget to set the registration or welcome bonus amount. A good signup bonus can be worth thousands of dollars, so it’s definitely worth comparing a bit.
Many cards also offer additional benefits beyond the purchase rewards. Some of the best travel rewards credit cards will come with perks like airport lounge access or an annual travel credit. If you travel regularly, these additional benefits can be well worth an annual fee.
Another thing to consider when comparing credit cards for traveling abroad is the network. Visa and Mastercard are generally more widely accepted. Amex and Discover both have a big footprint, but they may not be as universally accepted as their competition.
And when it comes to ease of use, many other countries, especially in Europe, use a chip and PIN verification system. In contrast, most US credit cards work with chip and signature verification. Although you can still use your chip and signature card to make purchases in most places abroad, you may experience problems with some automatic terminals.