Foreign Transaction vs. Currency Conversion Fees

Understand the differences between foreign transaction fees and currency conversion fees when making purchases overseas. This guide helps you minimize costs and choose the most cost-effective payment method while traveling.


Foreign transaction fees and currency conversion fees are both associated with making purchases or transactions in a foreign currency, but they are distinct fees that serve different purposes. Here's an explanation of each:

  1. Foreign Transaction Fees:Foreign transaction fees, also known as foreign transaction charges or foreign exchange fees, are fees imposed by credit card issuers when you make a purchase or transaction in a foreign currency. These fees are typically a percentage of the transaction amount, usually around 1% to 3% of the purchase price. For example, if you use your credit card to make a $100 purchase in a foreign currency and your card has a 2% foreign transaction fee, you would be charged an additional $2 for the fee.

    Foreign transaction fees are designed to cover the costs associated with converting the foreign currency back into your home currency and to compensate the credit card issuer for currency exchange services.

  2. Currency Conversion Fees:Currency conversion fees, on the other hand, are fees associated with the actual process of converting one currency into another when you make an international transaction. These fees are typically charged by financial institutions, such as banks, when you exchange one currency for another, either in cash or through a currency exchange service.

    Currency conversion fees are not limited to credit card transactions but can apply to any type of currency exchange, including when you exchange cash at a bank or an airport currency exchange booth. The fees can vary widely depending on where and how the currency exchange is conducted.

It's important to note that not all credit cards have foreign transaction fees. Many credit cards, especially those designed for international travel or issued by major banks, offer the benefit of no foreign transaction fees. If you frequently make purchases or travel internationally, it's a good idea to choose a credit card that does not charge foreign transaction fees to save on these additional costs.

In summary, foreign transaction fees are charges imposed by credit card issuers for making purchases in a foreign currency, while currency conversion fees apply to any currency exchange transaction, including those made at banks, currency exchange services, or when using foreign cash. Understanding and minimizing these fees can save you money when dealing with foreign currencies.

Distinguishing between foreign transaction fees and currency conversion fees when using credit cards abroad..

Foreign transaction fees are charged by credit card issuers for transactions made in a currency other than the US dollar. These fees typically range from 1% to 3% of the transaction amount.

Currency conversion fees are charged by credit card issuers or payment networks for converting a transaction amount from one currency to another. These fees are typically around 2% to 3% of the transaction amount.

It is important to note that foreign transaction fees and currency conversion fees are two separate charges. Foreign transaction fees are charged by the credit card issuer, while currency conversion fees can be charged by either the credit card issuer or the payment network.

In some cases, merchants may offer to convert the transaction amount to US dollars for you. This is known as dynamic currency conversion (DCC). However, DCC should be avoided, as it typically results in higher fees for the customer.

Here is an example of how foreign transaction fees and currency conversion fees can work together:

  • You are traveling to Europe and use your credit card to purchase a €100 item.
  • Your credit card issuer charges a 3% foreign transaction fee.
  • The payment network charges a 2% currency conversion fee.

As a result of these fees, you will be charged €106.06 for the item.

Here are some tips for avoiding foreign transaction fees and currency conversion fees:

  • Use a credit card that does not charge foreign transaction fees.
  • When making a purchase in a foreign currency, decline the merchant's offer to convert the transaction amount to US dollars.
  • Use a debit card instead of a credit card, as debit cards typically do not charge foreign transaction fees.
  • If you must use a credit card, try to make large purchases instead of multiple small purchases, as this will minimize the impact of foreign transaction fees.

By following these tips, you can save money on your next international trip.