What is a Foreign Transaction Fee?
Traveling and shopping online at stores outside of the country are both great ways to broaden your horizons. And while those pursuits have entirely different goals, they have one very big thing in common — foreign transaction fees.
Understanding Foreign Transaction Fees
Credit card users and bank card users buying things in other countries, as well as international travelers and tourists, each have likely paid a foreign transaction fee or international transaction fee at some point. This type of fee is paid in addition to your purchase and is charged any time the transaction is made in a different currency from the U.S. dollar or is run through a foreign bank.
Why Do Transaction Fees Occur?
Foreign transaction fees are needed to help foreign banks recoup the administrative costs of processing your transaction. In some cases, your credit card issuer will have negotiated a deal so that foreign transaction fees are waived, but without that agreement in place, you can expect to pay an international transaction fee when buying or paying for something outside the United States. Dynamic currency conversion (DCC) fees will also likely apply. This is a premium tacked on to currency exchange in order to immediately convert your purchase amount to your home currency.
When and How Much Are You Charged?
Foreign transaction fees and DCC fees are not mutually exclusive. You may have to pay both. Foreign transaction fees can be as high as 3%, while dynamic currency conversion fees can go as high as 7%. In total, that means that a credit card user could pay as much as 10% on top of the purchase total.
How to Avoid the Dynamic Currency Conversion
DCC fees are not a given. While they may appear automatically, it is the card holder’s right to approve the conversion. Generally, you will be asked during the transaction whether you would like a dynamic currency conversion. At this point, you can decline the conversion. Alternatively, should the conversion happen automatically, simply void the transaction and start over. So when you’re ready to travel, make sure you’re aware of the conversion rate and what fee you’ll be charged. Happy travels.