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Spending $3,000 or more abroad on a credit card with a foreign transaction fee can sometimes cost you as much as an annual fee on a card that has no foreign transaction fees.
CompareCards.com looked at 165 credit cards from the 10 largest bank issuers, as well as those from the 10 largest credit unions, to see which of their credit cards assess foreign transaction fees, and if so, how. Here is some of what we found:
- Nearly half of all credit cards assess a foreign transaction fee, with an average fee of 2.61% per foreign transaction.
- Although roughly the same percentage of credit unions and bank credit card assess foreign transaction fees, cards issued by credit unions carry much lower fees. On average, credit unions assess a fee of 1.15%, while bank-issued credit cards charge 2.97%.
- To avoid foreign transaction fees, you’ll likely incur an annual fee. On average, the cards in our study with no foreign transaction fee charged an annual fee of $86.76, versus an average of $14.99 annual fee among cards that assess foreign transaction fees.
- Cards with foreign transaction fees can cost users more than the annual fee of many credit cards with no foreign transaction fees. According to our study, spending $3,500 in Europe last summer using a card with foreign transaction fees would have cost $100, rivaling the median annual fee of $95 for cards with no foreign transaction fees.
- A few dozen cards offer no foreign transaction fees and no annual fee, though some have trade-offs, like payment networks that are more limited.
- Not only does the amount of the foreign transaction fee vary by card issuer, the ways issuers assess these fees vary, as well. Some cards will charge a foreign transaction fee, even if you pay in U.S. dollars abroad. That can lead to a double hit of paying a merchant’s inflated dynamic currency conversion (DCC) rate in addition to a card’s foreign transaction fee.
Wish you were free
Of the 165 cards in our study, 75 assess a foreign transaction fee, as of April 2018. Among the banks, the foreign transaction fee average 2.97% per transaction, and cards issued by credit unions have an average foreign transaction fee of 1.15%. While many popular airline and travel rewards cards have no foreign transaction fees, they often charge an annual fee, which entitles cardholders to various rewards and other perks.
There are some cards that have neither annual fees nor foreign transaction fees. For instance, most Capital One and all Discover credit cards impose neither. However, Capital One doesn’t partner with an airline for rewards miles (like many of the cards with annual fees do), and Discover cards aren’t widely accepted in many countries, especially in Europe.
Compare the cards, not the banks
Don’t rely exclusively on a card issuer’s reputation to determine which card will or won’t assess foreign transaction fees. Although some banks like TDBank and Capital One don’t offer any cards with foreign transaction fees (and all cards from Wells Fargo assess them), most issuers fall somewhere in the middle. For example, while Citibank’s Costco Anywhere Visa® Card by Citi doesn’t assess a foreign transaction fee, the Citi® Double Cash Card – 18 month BT offer does at 3%. And despite American Express’ reputation for being a global card, several of its cards, like the Blue Cash Everyday® Card from American Express* , assess a foreign transaction fee of 2.7% of each transaction after conversion to US dollars.
The best of both worlds?
For the fee-allergic, there still are some cards that don’t assess a foreign transaction fee nor an annual fee. Twenty-seven percent of the cards in our study have neither. But there are catches. For example, these cards do not offer the best bonus multipliers and airline partnerships — those come from cards with annual fees. And as stated earlier, many merchants, especially in Europe, don’t accept Discover cards.
* The information related to this offer has been collected by CompareCards and has not been reviewed or provided by the issuer of this card. These offers and/or promotions may have since changed, expired, or are no longer available.
** Terms also available with other Kroger-branded credit cards.
Credit card fee data as of April 2018.
Comparing foreign exchange costs with and without a credit card
Despite the imposition of foreign transaction fees, credit cards are still usually superior to the non-credit card alternatives when it comes to currency exchange. Below is a list of some suboptimal methods.
At the airport: Most may probably know this, but airport kiosks are almost always the worst possible deal for changing U.S. dollars to local currency. Need confirmation? Next time you’re at an international airport, notice the difference between the rate of the Swiss Franc and the U.S. dollar. Currently the exchange rate is about par, with one franc worth about the same as one dollar. The further away from 1.00 the dollar or franc are, the more you’re paying the foreign exchange merchant for the service. Ten percent or more isn’t unusual. On top of that, you may pay an extra currency conversion fee for smaller transactions.
At the bank: Some bank branches will have major foreign currency available for purchase, but don’t expect a bargain. Foreign currency purchased in U.S. banks before traveling can cost 5% or more.
At an ATM: Although the exchange rate is favorable, as it’s the same rate you would receive on a credit card purchase, you may incur a fee if it’s an out-of-network ATM. And then there’s the matters of daily withdrawal limits, and what to do with any unspent currency at the end of your vacation.
Dynamic currency conversion (DCC): At the point of sale, many merchants — or more specifically, the merchants’ credit card terminals — will offer U.S.-based credit card users a choice to pay in, say, euros, or in familiar U.S. dollars. What the user may not learn, unless they read the fine print on their receipt, is that you pay a premium for using the dynamic currency conversion, often as much as they would if they used a card with a foreign transaction fee of 3%. (The cost of DCC depends upon the merchant, who decides the rate to charge.) And some cards charge a foreign transaction fee even on foreign purchases already converted to U.S. dollars, adding to the cost.
Cards with a foreign transaction fee: Users will pay up to 3% more for a transaction than no-foreign transaction fee alternatives. On a vacation to Europe last summer, 2,800 euros in charges ($3,261 in the prevailing exchange rate) would have meant a cost of $100, in both foreign exchange and foreign transaction fees, assuming a 3% foreign transaction fee.
NO foreign transaction fee (but probably an annual fee): For the foreign transaction fee averse, there are alternatives. But that doesn’t mean you avoid all the costs. There’s still the exchange rate that’s set by both Mastercard® and Visa®, which will typically cost a about 0.5% versus the interbank rate you’d get at an ATM. (The difference between Visa® and Mastercard® rates varies daily).
Visa® vs. Mastercard®, is there a difference?
The short answer: Yes, though you probably won’t notice.
Both Visa® and Mastercard® use different currency conversion tables to calculate foreign exchange costs. (American Express and Discover don’t publish their rates). The rate you get using a Visa® or Mastercard® is about 0.05% above the best rate banks offer each other, the interbank rate, with Visa® just slightly higher than Mastercard®.
Average daily rates between the Euro and the U.S. Dollar
Methodology: The daily average exchange rates between the euro and the U.S. dollar as published by the Federal Reserve, Visa® and Mastercard®, June 1 – Sept. 30, 2017.
How using the right card (and the right way to pay) can make all the difference
A $1,000 purchase in a Parisian department store last summer (then about 850 euros) could have cost an American shopper buying with a credit card either $1, $30 or $56. Why the disparity?
- With a credit card that imposes no foreign transaction fees, you’d barely feel the pinch. The difference between the average official rates and the Mastercard® and Visa® conversion rates were less than one-tenth of a cent. That’s 51 cents on an $1,000 purchase using a Mastercard®, or 68 cents with Visa®.
- With a credit card that imposes a 3% foreign transaction fee, the total cost is about $30 — the under $1 loss in the card network’s exchange rate, plus an the 3% fee, or $29.72.
- In the worst case, that purchase would be assessed two separate charges. If you choose to use the merchant’s dynamic currency conversion to make the transaction, and you made the purchase with a card that assesses a foreign transaction fee on purchases made outside the U.S., even if the currency is U.S. dollars. In our example, that 850 euro purchase incurs as much as $55.96 in costs and fees, assuming a DCC rate of 3% and a foreign transaction fee of 3%. As of April 2018, some Bank of America® and U.S. Bank credit cards assess fees for U.S. dollar transactions abroad.
One easy way to avoid the DCC charge: Use one of many freely available foreign conversion apps, which quickly translate how much of a bargain you’re receiving, without a fee.
Comparecards looked at the annual fees and foreign transaction fees of the 10 largest U.S. facing credit card issuers and the credit cards issued by the 10 largest credit unions, to determine the percentage of credit cards that impose either annual fees or foreign transaction fees. Credit card terms as of April 2018.