Yet somehow, they still manage to make healthy profits from their credit cards that don't have foreign transaction fees.īy now, you might be thinking that these fees are an outrageous scam that's worthy of a lawsuit. These same banks charge their customers from other countries additional fees to process transactions here in the US.! If you're still convinced that there must be some rationale behind these charges, consider this. In the end, nobody has to go to Nepal to process your credit card bill for lunch in Katmandu. So there isn't a significant cost of doing this conversion.
Interbank rates are the most favorable exchange rates you can get. And they do so at something called interbank rates. than it does at home.īanks use computers to daily process billions between U.S. It doesn't cost credit card issuers anymore to process transactions outside of the U.S. In reality, the process is much more mundane than that. You might picture a credit card issuer having to open an offices in exotic places all over the world like Burkina Faso and Papua New Guinea just to process your foreign credit card transactions. When a bank imposes a 3% charge on everything you buy, it must be because it incurs serious costs for running these foreign transactions, right? So, if you have a credit card that offers 1.5% cash back, you might actually be paying 1.5% thanks to this 3% fee!Īnd that's every single time you use your card on a foreign transaction. Whether it's cash back, points, or miles, you're not likely earning up to this 3% value.
And that doesn't even include transportation or souvenirs.įurthermore, this 3% fee is going to be greater than the value of rewards you're earning on your credit card.
Add in a museum ticket or some other cultural event. Then you might grab a cup of coffee or some drinks. In one day you may buy breakfast, lunch, and dinner out. Imagine if you're traveling to another country. This 3% may not sound like a lot of money, but it can add up quickly. That's 3% of the purchase you made, so the amount of the fee will vary. Most credit card issuers charge a 3% foreign transaction fee. (online or in person), your credit card issuer could charge a foreign transaction fee. Put simply, if you buy something outside of the U.S. You pay a currency conversion charge when you convert your money to another country's money.īut a foreign transaction fee, charged at the time of a purchase, could even come up if the foreign country you're in accepts US currency. Most people think of currency conversion charges when they think of foreign transaction fees.īut these two things are not the same. If you make the purchase from a foreign company, you could be charged this fee. Think about when you're buying something online. This means you can be charged a foreign transaction fee even from the comfort of your own home. Note the part of the definition that says, "any transaction that is processed outside of the United States." What are Foreign Transaction Fees?Ī foreign transaction fee is charge imposed on any transaction that is processed outside of the United States. In fact, the more I've learned about this fee, the more adamant I've become informing credit card users about it. (And few that are as completely unnecessary.) There is no credit card fee that I've found to be more misunderstood than the so-called foreign transaction fee.
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