How do foreign transaction fees work? | finder.com

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How foreign transaction fees work

Learn what it is and how to avoid it when you travel abroad or shop at a foreign store online.

Accessing your money overseas — whether it’s online shopping at a foreign store from home or withdrawing cash at an overseas ATM — can get pricey. Familiarize yourself with the fees you could be facing, and consider switching to a more competitive checking account with no foreign transaction fee if the costs are starting to add up.

What is a foreign transaction fee?

A foreign transaction fee, also called an FX fee, is charged to your account when a currency conversion takes place. For example, if you buy something online from Canada and your bank needs to process the payment in CAD instead of USD, it’ll charge you a fee for making this exchange. Although foreign transaction fees vary by institution, they’re usually around 3%.

How to avoid foreign transaction fees

If you’re stuck paying a foreign transaction fee when you swipe your card, here are a few ways to avoid them:

  • Exchange currency before you leave the US. Converting money at your home bank before you head off overseas could save you the conversion fee.
  • See if your bank has any foreign partnerships. Some banks partner with other institutions to bring their customers fee-free access overseas. For example, Bank of America customers can withdraw money for free at any Scotiabank ATM in Canada, Chile, Mexico and Peru.
  • Get a new checking account. If foreign transaction fees are eating into your bank account, you may want to consider getting a debit card with no foreign transaction fee. That way you can avoid the fee and keep more money in your pocket.

What are the features of debit cards with no foreign transaction fee?

Checking accounts with debit cards geared toward users who make foreign transactions generally include features such as:

  • Low currency conversion fees. Some debit cards have low fees or waive these fees altogether.
  • Low ATM fees. Some cards don’t charge you to use foreign ATMs at all, while other have low fees or international ATM networks.
  • Competitive exchange rates. Using a debit card from a bank that charges exchange rates as close as possible to the mid-market rate can save you a considerable amount of money on foreign transactions.
  • Global money transfers. If you regularly make foreign purchases or payments then you may want to look for a bank that offers low-cost or free international transfers.
  • Rewards programs. Some debit cards let you earn rewards points for eligible purchases which you can use to claim travel benefits. Take a look at whether your card is linked to a frequent flyer program or a dedicated provider rewards program.

Compare checking accounts with no foreign transaction fee

Name Product Fee ATMs ATM transaction fee Out-of-network ATM fee ATM fee rebates Foreign transaction fee
HSBC Premier Checking
$50 per month
Free to use at all ATMs in the US
$0
$0
0%
Get a 3% cash bonus in the first six months (up to $600) or $450 welcome bonus when you open your account with qualifying activities. Must open HSBC Premier checking account through offer page by June 30, 2021, and set up qualifying direct deposits into the new account. Conditions apply. Deposit products are offered in the US by HSBC Bank USA, N.A. Member FDIC.
Chime Spending account
$0 per month
38,000 fee-free ATMs nationwide
$0
$2.50
0%
Get rid of fees with this financial app offering consumer-friendly accounts. Chime can also help you save easily and access your paycheck faster.
Lili
$0 per month
32,000 fee-free ATMs nationwide
$0
$2.50
0%
A checking account designed for freelancers with no account fees and no minimum balance.
Novo
$0 per month
Novo doesn't charge ATM fees and will reimburse any non-network fees you incur
$0
$0
Refunds all ATM fees
0%
A low-fee online checking account designed for small businesses and startups.
SoFi Money
$0 per month
$0
$0
SoFi will reimburse ATM fees charged by other institutions when it is used at any ATM displaying the Visa, Plus, or NYCE logo.
0%
SoFi Money® is a cash management account that charges no account fees to save, spend, and earn cash back rewards when you spend on brands you love.
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Compare up to 4 providers

Other fees to watch out for and how to avoid it

In addition to foreign transaction fees, look out for the following when traveling abroad:

ATM fees

Some banks will charge you a fee as high as $5 or more for using a foreign ATM, which you’ll have to pay on top of the fee you’re charged from the ATM provider. These fees can be charged any time you use an ATM, including to withdraw money, transfer money or just check your balance.

  • How to avoid them:

To save on these fees or sidestep them completely, you can:

  • Switch to a fee-free bank. Use a travel-friendly bank — like Capital One and Discover — with no overseas ATM withdrawal fees.
  • Limit the number of transactions. Considering withdrawing a larger amount of money when you visit a foreign ATM to cut down the number of withdrawals you need to make. Or exchange currency before traveling.
  • Ask about partner banks. Before your trip, check to see if your bank has any affiliate banks abroad that allow you to take out money without fees.
  • Check for reimbursements. Some banks — like Charles Schwab — will cover the cost of ATM fees.

Currency conversion fees

Currency conversion fees are charged each time you make a transaction where the bank needs to convert your money into a different currency. Most banks will charge currency conversion fees as a percentage of the amount you withdraw or spend. These fees can be charged on their own if you’re shopping online at a foreign store or purchasing something in person while traveling.

They can also be added on top of ATM fees if you withdraw money while out of the country. Most banks charge around 3% for using a foreign currency, but accounts geared towards travelers can sometimes come with lower or no conversion fees.

  • How to avoid them:

You can miss this fee completely by using a credit or debit card — like the Capital One 360 debit card — that waives the currency conversion fee.

Another way to avoid this fee is to use a prepaid travel card and preload the foreign currency you’re planning to spend (see what happens when your prepaid card doesn’t support the local currency).

Foreign exchange rate margin

Banks also make money by adding a margin on top of the real exchange rate when transferring one currency into another. For example, if US$1 is currently worth EUR€0.88, your bank might exchange your money at US$1 = EUR€0.87 and keep the difference. While this cost is not as transparent, if your bank is offering a poor exchange rate you could be losing money when using your debit card overseas.

  • How to avoid them:

If you know your bank has a poor foreign exchange rate, consider a travel card that locks in the exchange rate when you load money on the card. Alternatively, credit cards generally use the daily interbank exchange rate, which may be more favorable than your bank’s rate with the margin.

International money transfer fees

If you need to send money to someone overseas, your bank can charge you an international money transfer fee on top of the currency conversion fee and exchange rate margin, which can get pricey. These often cost around $15 to $45 at major banks.

  • How to avoid them:

The best way to reduce these fees is to find a debit card that allows you to transfer money to partner banks in various countries for a small charge. Online-only and international banks generally have lower international wire transfer fees than US-only banks.

Cash advance fees

This steep fee, plus interest, is charged by credit card companies each time you make an ATM withdrawal with your credit card.

  • How to avoid them:

It’s simple: Avoid this by not making cash withdrawals on your credit card. Instead, pack a prepaid travel card or debit card that you can use for overseas withdrawals.

Other considerations

A foreign transaction fee isn’t the only debit card issue to be concerned about. If you’re a frequent traveler or you regularly use foreign currencies, you may want to consider:

  • Access. Check how easy it is to access your money while overseas. For example, does your bank have partner ATMs overseas? Do you have a debit card that’s widely accepted internationally, like a Visa or Mastercard?
  • Online banking. If you travel often, you’ll likely want access to online banking when you can’t get to a branch. Some banks will even let you add travel notices to your card online so your account doesn’t end up getting frozen while overseas.
  • Prepaid options. Card providers have come out with various prepaid debit card options for travelers that allow you to load your card with the money you want to spend. These cards let you save on currency conversions and also some foreign transaction fees. If you like your current debit card for everything other than foreign transactions, you can get a prepaid card to use when traveling.

Bottom line

Foreign transaction fees can get pricey, especially when they’re being charged on top of each other. For example, if you withdraw money at a foreign ATM, you can be charged an ATM fee, currency conversion fee and exchange rate markup. To make sure you’re getting the best deal, compare checking accounts to find one with a debit card that works for both your domestic and international purchases.

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