Research Foreign Transaction Fees Before You Travel Abroad

As major banks feel pressure to boost profits, some credit card issuers have targeted foreign travelers for special fees and surcharges. Foreign transaction fees often save money on most overseas credit card purchases, compared to local currency conversion services. However, a growing trend of rising service fees has forced smart travelers to search for better deals from competing banks.

Using Credit Cards Abroad Saves Cash

Carrying cash abroad can be risky. A pickpocket or a lost wallet can ruin a vacation or stall a business trip. For decades, travelers’ checks allowed globetrotters to reduce their risk by replacing lost or stolen funds. Both solutions require you to find a change bureau willing to trade your cash or checks for local currency, usually at an unfavorable conversion rate. Standing in line for a teller may have worked just fine ten years ago, but it doesn’t fit today’s fast-paced lifestyle.

Just as credit cards have become widely accepted in the United States, they have become a preferred form of payment in many parts of the world. When I traveled to the UK in November 2009, a £10 cab ride converted to .50, including my bank card’s foreign transaction fee. I’m far happier to have paid fifty cents by swiping a card than paying after a trip to a bureau de change.

Common Foreign Transaction Fees

As of March 2010, major credit card issuers report foreign transaction fees ranging as high as 3 percent:

Capital One – no foreign transaction fee
American Express – 2-3%, depending on member status
Bank of America – 3%
Chase – 3%
Citibank – 3%
HSBC – 3%
Wells Fargo – 3%
Discover Card – 2%; accepted in China, the Caribbean, Central America, Mexico and certain parts of Europe
Pentagon Federal Credit Union – varies, with at least one fee-free product

Because Capital One operates bank branches in both the U.S. and in Europe, it has opted not to charge any foreign transaction fees. In addition, you can make a same-day payment to Capital One’s secure Web site from any pre-registered checking account. This is how I saved hundreds of dollars in fees on my most recent trip, spending a few minutes in the hotel’s business center to make a quick payment that cleared my balance. Pentagon Federal Credit Union also offers a handful of credit cards with no transaction fees, especially attractive for military members serving overseas.

Watch the Register for Unexpected Credit Card Fees

While abroad, you may encounter retailers willing to charge you in your home currency. These point-of-purchase conversions almost always use inflated rates that can run 10% or higher to credit card issuers’ market rates. Furthermore, these purchases still trigger foreign transaction fees, since the sales take place outside the U.S.

You don’t always have to leave the country to run into foreign transaction fees. Some credit card issuers treat any transaction made outside the 50 U.S. states as “foreign,” meaning you could get charged a fee for an overseas online purchase or an in-person transaction in the Dominican Republic. It’s always a good idea to check with foreign-owned e-commerce companies whether your transaction will be processed domestically.

Frequent travelers can still find good value among credit card offerings, even when issuers charge foreign transaction fees. For instance, American Express now offers numerous reward programs that can benefit globetrotters, while also offering fast and convenient fraud protection and card replacement services. Airline affinity cards can earn back their annual fees and service charges with free upgrades, travel vouchers, and hotel nights. Regardless of the credit card you choose for your next overseas trip, remember to notify your issuing bank of your upcoming itinerary, so they don’t mistakenly place a fraud block on your account.