Sticking to a budget is hard enough while on vacation in a foreign country. Add to that elusive fees, such as the foreign transaction fee on credit cards that tacks on a few extra dollars and cents to all purchases made abroad, and it becomes all that much harder.
What is a foreign transaction fee?
Every time you swipe, tap or insert your credit card in a foreign country, you incur a fee known as a foreign transaction fee. On average, this fee adds an additional 2.5% to all credit card purchases made in a foreign currency. The math is quite simple; if you buy a meal for $50 while abroad, you’ll pay $1.25 in foreign transaction fees (50×0.025).
While an extra dollar or two on a purchase may not seem like much, the amount of money you lose to foreign transaction fees can quickly pile up as you increase the number of transactions you make or splurge on ever-more-expensive items.
Based on our calculations, the average four-member family who spends $2,850 on food, transit, shopping, and tourist attractions would lose $71.25 to foreign transaction fees in a single vacation. Extrapolate that figure across multiple trips over years and it’s evident how, in the long run, you can spend several hundreds if not thousands of dollars on this fee. That’s hard-earned money that could have otherwise been invested, saved, or put towards a meaningful purchase.
Outside of a few exceptions (which we go into more detail below), the majority of credit cards in Canada charge a foreign transaction fee.
Here are a few top-level facts about foreign transaction fees:
- Typically, this fee adds 2.5% to purchases made in a foreign currency and is tacked on top of the exchange rate
- Foreign transaction fees are charged by credit card issuers (think TD or CIBC) in order to cover the additional cost of processing transactions in a foreign currency
- Visa Debit cards are not immune to foreign transaction fees. Foreign purchases made through a Visa debit card will result in the same 2.5% ding to your bank account
- It’s often the case that foreign transaction fees are not listed as a separate expenditure in a credit card statement. This can make the fee hard to spot when reviewing your finances
Foreign transaction fees on online purchases
You don’t have to be in another country to be hit with foreign transaction fees. Credit card holders are charged this fee for any purchase involving a foreign currency, including those made online.
If you’re shopping online and the item you’re eyeing can only be bought in US dollars, you’ll be charged an additional 2.5% if you proceed with the purchase. Rest assured however, foreign transaction fees will not be charged on online purchases made in dollars.
No foreign transaction fee credit cards in Canada
If you’re a frequent flyer, money-conscious traveller, or regular cross-border shopper, you may want to consider applying for the minority of credit cards that do not charge this fee, aptly known as no foreign transaction fee credit cards.
Aside from the obvious benefit of 0% foreign transaction fees, these credit cards tend to offer additional perks ranging from cash back or travel rewards points, no annual fees, and lounge access at airports, depending on the credit card of course. That means you can rack up savings and reward points while shopping both at home and in another country.
It’s worth noting that some no foreign transaction fee credit cards only waive the 2.5% fee for a limited number of foreign transactions per day, so always make sure to read a credit card’s fine print and carry some cash in your back pocket just in case.
Other ways to save on foreign transaction fees
Use foreign cash
Since this fee is charged on credit cards and Visa debit cards, one obvious consideration is to opt for cash over plastic and exchange currencies in advance of your trip. Carrying cash can be particularly useful when travelling to countries where credit cards are less ubiquitous.
However, keep in mind the cost of exchanging money at a bank or currency exchange office isn’t nominal. Plus, you run the risk of exchanging too much or too little money, which means you may be forced to pay the conversion rate more than once. Relying solely on foreign currency also means that you lose out on the opportunity to earn rewards points and the added security features of credit cards (such as chip technology and withdrawal limits), while also having the extra stress of carrying a lump of cash on the go and potentially becoming a vulnerable target of pickpockets.
Opting for a rewards credit card
While many don’t offer 0% foreign transaction fees, the best travel rewards credit cards do feature a suite of perks that can act to counterbalance the money lost on this fee. From sign up bonuses and the ability to earn rewards points that can be redeemed for discounted flights and hotel rooms, plus more, picking the right travel rewards card can have you walking away with more money in your account even after factoring in foreign transaction fees. Some rewards credit cards also offer an array of travel benefits, such as complimentary travel insurance and free checked baggage at airports, which can lead to additional savings for vacation-goers. Insurancelly’s Credit Card Navigator can inform you about details of credit card travel insurance.