When traveling abroad – whether that’s for business or pleasure, you need to make some serious considerations regarding foreign transaction fees. The fees that you pay will not only depend on the type of transaction – such as ATM withdrawals or in-store spending, but the underlying card issuer, too.
With that being said, the general consensus is that by obtaining a specialist credit card prior to departing, you stand the chance of avoiding foreign transaction fees, period.
Taking into account the sheer number of credit card providers now offering such a service, we’ve created the ultimate guide to the Best No Foreign Transaction Fee Credit Cards in 2019. On top of listing the best providers, we’ve also discussed some really handy tips on what you need to do to ensure you never pay any foreign exchange fees.
How do foreign transaction fees typically work?
If you’re about to jet-off overseas, then it’s likely that you are going to be using a currency other than the US dollar. Sure, you might decide to bring a small lump of dollars with you, but what happens when you require additional cash when you arrive? In most cases, you have two options.
You can either withdraw cash from a local ATM in the country’s native currency, or you can use a traditional debit/credit card in-store. Each option comes with its pros and cons, so it’s best that we breakdown the types of charges that you will typically pay.
If you are using a conventional card issued by a US bank, then you will all-but certainly be charged ATM fees when traveling overseas. First and foremost, you are likely to be charged an ATM fee by the specific machine that you withdraw from. This can vary quite considerably depending on the location that you are in. However, in most cases, this will be a fixed-fee, which is displayed on-screen before you make a withdraw. Irrespective of the type of card you are in possession of, this particular ATM fee cannot be avoided.
In terms of what your bank is likely to charge you, this will once again vary depending on the issuer. In most cases, this will be a fixed withdrawal fee, plus a foreign transaction fee. The latter will average between 3%-5%, which is very expensive.
Let’s take a look at how the above charges work with a quick example.
💳 You visit the UK and decide to withdraw the GBP equivalent of $500 from an ATM.
💳 The local ATM charges you the GBP equivalent of $5 for using the machine.
💳 Your US bank charges you a flat ATM fee of $5.
💳 Your US bank also charges you a foreign transaction fee of 4% – amounting to $20.
As you will see from the above example, your $500 ATM withdrawal has resulted in three individual charges. This covers the local ATM charge, the fixed withdrawal fee charged by your US bank, and the foreign transaction fee charged by your bank. All-in-all, your $500 ATM withdrawal came with fees of $5, $5, and $20 – amounting to a whopping $30! In comparison to the amount you took out, this represents a real-term fee of 6%.
When we refer to in-store transactions, we are talking about purchases that are physically made with your card. For example, this could see you pay for your restaurant bill with your card, or pay for a train ticket by inserting your card into an automated ticket machine. Essentially, this covers all physical purchases apart from ATM withdrawals.
In terms of the underlying charges that you should expect, this will vary slightly from a typical ATM withdrawal. Firstly, you won’t need to pay a local withdrawal fee, as you are not using an ATM. Moreover, you won’t need to pay a fixed withdrawal fee to your US bank, as once again, you’re not using an ATM.
However, what you will need to pay is a variable foreign transaction fee. In fact, it is estimated that 91% of US banks charge a foreign transaction fee when you use your card to pay for things overseas, and this typically averages 2-3%. As such, spending the local currency equivalent of $100 in a restaurant will cost you around $2-$3 in fees.
What exchange rate do I actually get when using my card overseas?
On top of the specific fees charged by your US bank, you also need to make some considerations as to what exchange rates you are actually getting, and how the bank calculates it. Otherwise, you’ll end up using your card overseas and not knowing how much you are paying in real-terms. Here’s the low-down.
💸Let’s say that you are overseas in Germany, which uses the Euro (EUR).
💸Let’s also say that 1 USD = 1.2 EUR
💸This means that a 120 EUR payment would amount to $100
💸 But wait! This is the exchange rate that banks are able to get because they execute trillions of dollars worth of cross-border transactions with other financial institutions
💸 As such, the bank will add on a foreign transaction fee, typically amounting to 2%-3%
💸 Based on a mark-up of 3%, the exchange rate that you get personally is actually 1.164 EUR to the USD!
Tips to using no foreign transaction fee credit cards wisely
So now that you know just how expensive it can be when accessing cash while traveling, let’s explore what you need to know before using your no foreign transaction fee credit card overseas.
Tip 1: Use your credit card wherever you can
Before you depart, you need to remind yourself that you should use your no-fee credit card at every possible opportunity. Whether you are paying for a single cup of coffee, train tickets, tours, dining or gifts – if the merchant in question accepts credit cards – use it!
The reason for this is that you want to avoid using an ATM machine. Not only will you need to pay a local fee, but you are likely to be charged a cash advance fee by your credit card provider.
Tip 2: Withdraw the maximum from an ATM
While you should always strive to pay for things with your credit card when overseas, you will still need to have some cold-hard cash to hand. This will be required in the event that your respective purchase cannot be made with a credit card. Nevertheless, when it comes to using a local ATM machine, you should always withdraw the maximum amount possible.
This is for two key reasons. Firstly, if the local ATM machine charges a one-time fixed fee, you will need to pay this every time you make a withdrawal. Secondly, although your no foreign transaction fee might come with a 0% mark-up on physical purchases, your US bank might still charge a fixed ATM fee – as they do domestically. Ultimately, by making small, frequent withdrawals, you will be accustomed to fees every time, so try to take out the largest amount possible.
Tip 3: Always withdraw/pay in local the local currency
If you’ve ever used your credit card overseas before, then you’ll likely know the drill. Let’s say that you ask to pay your $50 restaurant bill with your credit card, which is the local equivalent of 40 EUR. The waiter then enters the amount into their credit card terminal, and asks whether you would “like to pay in Euros or US dollars”.
Although you might think that it is easier to keep track of your spending if you opt for US dollars, you must avoid doing this at all costs. Irrespective of where you are, always pay in the local currency. The main reason for this is that if you choose US dollars, you will be engaging in something called a ‘Dynamic Currency Conversion’.
In layman terms, the local bank that facilitates the transaction will use their own foreign exchange rate, which will always be significantly higher than what your US bank charges!
Tip 4: Set-up an automatic debit payment to clear your overseas spending in full
This final tip is potentially the most important. In a nutshell, as you rack up spending on your credit card when overseas, your purchases will be applied to your next monthly statement. When you do receive the statement, and you proceed to pay it in one hit, then you will avoid paying any interest.
On the contrary, by just paying the minimum, interest will be applied. The best way to ensure that you remain interest-free is to set up an automatic debit agreement via your checking account before you leave. You will also need to log in to your credit card account portal and instruct the issuer to take the full statement amount from your card when the payment is due.
Criteria used to rank the best credit cards
❓ 0% foreign transaction fees
❓ If possible, no foreign ATM charges from the US card issuer
❓ 0% rate available in all overseas countries
❓What credit limit is available
❓ Standard APR rate charged
❓ Whether the card comes with travel rewards
❓ Whether or not the card offers an introductory offer of 0% on purchases
❓ Eligibility requirements
When you use your bank card overseas, you will likely be charged a fee because you are paying in a currency different to the US dollar. This typically averages 2-3% more than the rate the bank gets.
Irrespective of the type of card you use, you will always pay a fee when withdrawing cash overseas. Not only will both the local ATM and your US bank charge you a fixed withdrawal fee, but the card issuer will also charge you a cash advance fee. This usually costs 3% of the amount you take out, and interest is applied instantly.
Absolutely not. This is known as a Dynamic Currency Conversion, and it is really expensive. Essentially, the local bank that processes the transaction will apply their own exchange rate, which will always be more expensive than what your credit card issuer charges. As a result, always ensure that you pay in the local currency.
If you go with one of the providers we have recommended in our guide, then you will receive rewards every time you make travel-related purchases. This means that you should use the card to book your flights and hotels before you depart. Not only will you receive additional points, but as long as you pay the balance in full when you receive your monthly statement, you’ll avoid paying any interest.
This will depend on the card issuer in question. While some credit cards come with no annual fees, others – such as the American Express Platinum Card, come with an annual cost of $550. This isn’t necessarily a bad thing, as the travel rewards that the card comes with will more than cover the annual fee, if used correctly.