The foreign transaction fee isn't the most common credit card fee, but it’s one you should look out for even if you don’t travel frequently. A foreign transaction fee is charged as a percentage of purchases or ATM withdrawals you make in other currencies. Typically, you’ll pay around 3% of the transaction in a foreign transaction fee. That’s $3 on a $100 transaction. It seems like such a small fee, but if you’re frequently making transactions in other currencies, that small fee can really add up.
Paying fees of any kind works against you if you're trying to earn rewards on your credit card purchases. Because the foreign transaction fee is charged separately from the transaction, and not included in the transaction itself, you won’t earn any rewards on the fee. So, paying a transaction fee on a rewards credit card can negate the benefit of the rewards you earn. To illustrate, say you have a credit card that pays 1% cash back and charges a 3% foreign transaction fee. On a $100 purchase, you’ll earn $1 in rewards, but you’ll pay a $3 foreign transaction fee.
If you’re using your credit card for international travel, you can expect to see the fee tacked on to each credit card purchase you make. You might even have to pay a foreign transaction fee on certain purchases even if you’re not travelling internationally. How? Remember, the fee is charged when you make purchases in other currencies. Making online purchases with a company that processes transactions through a foreign bank can lead to a foreign transaction fee. You might see this, for example, if you buy something from an online retailer located in Europe.
There are credit cards that waive the foreign transaction fee completely. One of these credit cards is a better option for reducing the cost of international travel. Most travel rewards credit cards, for example, waive the foreign transaction fee and you’ll earn rewards on the purchases you make. And these rewards won’t be offset by an additional fee.
You can tell if your credit card charges a foreign transaction fee by checking your credit card agreement. You’ll see the foreign transaction fee listed in the fee section along with the annual fee, transaction fee, and penalty fees. If your credit card doesn’t charge the fee, you’ll see “None” next to foreign transaction fee. Otherwise, you’ll see the amount of the fee. If you’re unable to locate your credit card agreement, give your credit card issuer a call using the number on the back of your credit card. They can tell you definitively whether you’re charged a foreign transaction fee and the amount of the fee.