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What is a foreign transaction fee?

By:  Jennifer Laird | 16th November 2021

Ever noticed a foreign transaction fee on your credit card bill? If so, you might be wondering what the charge is for, and how you can avoid it in the future. Here’s what you should know. 

What is a foreign transaction fee?

A foreign transaction fee is a charge made by your credit card company when you buy items through a foreign bank, or in a foreign currency. Normally, the fee appears on your credit card statement as a separate charge, so you can see it when you check your bill. 

How much is it?

Well, it all depends on your credit card issuer. Normally, though, foreign transaction fees are between 1% and 3% of the purchase price. 

Want to know how much you’ll be charged? Check your credit card agreement – the percentage will be specified there. 

How is a foreign transaction fee calculated?

Although it’s a single charge, the fee is based on two charges:

Essentially, there’s a cost to convert money from one currency to another. So, your credit card issuer or bank might charge you for handling the transaction. The processor (e.g. Visa or Mastercard) may also charge their own handling fee. Combined, these charges make up your total foreign transaction fee.  

Do all credit cards charge a foreign transaction fee? 

No. In fact, there are many options out there if you’re looking for a credit card with no foreign transaction fees. If you don’t pay a foreign transaction fee, though, how is payment calculated?

Well, it’s based on the foreign exchange rate at the time you make your purchase, whether it’s online or abroad. So, for example, if you buy something in euros with a Visa credit card, you’ll be charged the Visa exchange rate at the moment of purchase. 

To be clear, there’s no guarantee that it’ll work out cheaper to get a credit card with no foreign transaction fees. Depending on the exchange rate, you could end up paying more or less for the same items. 

So, remember: whether or not you’ll pay foreign transaction fees is just one of many factors you should consider when looking for a new credit card. So be sure to research all of your options before applying for a credit card.  

Where can I find a no foreign transaction fee credit card?

Well, it’s just like shopping for any other credit card.

First, compare the top-rated travel credit card options available to find which is best for you. Some of them, like the Santander Zero card and the B credit card, don’t charge foreign transaction fees.      

Second, you could run a ‘soft’ credit search to check your eligibility before applying. Soft searches don’t affect your credit score, but they give you a better idea about whether you’re likely to be accepted for a card.   

Finally, remember this: before applying for a new card, always make sure you can afford the monthly repayments. Otherwise, you could damage your credit score in the long run.

Still have questions?

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