Credit Card Exchange Rates and Foreign Transaction Fees: What You Need to Know

Credit Card Exchange Rates and Foreign Transaction Fees: What You Need to Know

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One of the benefits of having a credit card is the ability to use it wherever you go — including in other countries. Instead of worrying about exchanging cash for a foreign currency, you can use a credit card to effectively convert your money with each transaction you make. Plus, you'll earn credit card rewards from your overseas purchases.

However, credit card currency conversion can sometimes come with fees — even if you have a card that doesn't charge foreign transaction fees. Here's what you need to know about credit card currency conversion rates and how to limit currency exchange fees as much as possible.

What is currency conversion?

Currency conversion is the conversion from one currency (e.g., U.S. dollars) to another (e.g., Japanese yen). When you make a purchase in a foreign country with your credit card, that purchase needs to be converted to your home currency before it can be charged to your account.

Usually you'll have to pay a fee to convert currency on your credit card (the currency conversion rate). The rate that's used may vary depending on the credit card network (e.g. Visa, Mastercard, American Express) and the type of currency conversion you select at the time of purchase.

There are two primary types of currency conversions:

  • Dynamic currency conversion (DCC): With dynamic currency conversion, the merchant sets the currency conversion rate and converts the purchase to your home currency before charging your credit card.
  • Currency conversion performed by your card issuer: In this scenario, your credit card network will use its currency conversion rate for the settlement date and currency in which you made the purchase.

As you'll see in our analysis below, the currency conversion performed by your card network is generally fair, and it's a much better option than dynamic currency conversion.

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Currency conversion vs. foreign transaction fees

People sometimes confuse foreign transaction fees with the fee that you have to pay for currency conversion. However, the foreign transaction fee is a separate fee that you pay on top of the currency conversion rate. Any time you make a purchase from a foreign merchant — whether you're at home or overseas — your card issuer may charge foreign transaction fees. The rate varies between credit cards, but it generally ranges between 2.7% and 3% of the converted transaction price.

You may assume that opting for dynamic currency conversion in order to pay in U.S. dollars will protect you from having to pay foreign transaction fees. However, that's not the case. Most cards charge foreign transaction fees any time your purchase is processed through a foreign bank — even when you pay in U.S. dollars.

Thankfully, there's a way around having to pay foreign transaction fees. Many of our favorite travel credit cards waive all foreign transaction fees. To figure out if your credit card has no foreign transaction fees, you'll need to dig into its "rates and fees" or "pricing & terms" — the long legal document that you agreed to when opening your credit card.

Thanks to U.S. federal regulations, all credit card fees have to be clearly disclosed. For example, the $0-annual-fee Chase Freedom Flex℠ charges a foreign transaction fee of 3% of each transaction in U.S. dollars of the amount of each transaction after converting to U.S. dollars.

fees

Meanwhile, Chase Sapphire Preferred® Card cardholders don't pay any foreign transaction fees:

fees

What is dynamic currency conversion?

Dynamic currency conversion refers to the method in which an overseas merchant converts a charge from the local currency to your home currency (e.g. U.S. dollars) before charging your credit card. This is an alternative to the currency conversion process that your card issuer would otherwise use, and it's generally presented as an option when visiting touristy areas.

Although it's nice to know exactly how much you're being charged, dynamic currency conversion can use inflated exchange rates and high fees. These can add up to you being overcharged by a few percentage points. Plus, you won't even avoid foreign transaction fees by using dynamic currency conversion. So, you should never select dynamic currency conversion.

Should you pay in local or foreign currency with your credit card?

You should always opt to pay using the foreign currency when given the option between paying in your home currency or the foreign currency. The currency conversion rate that your card issuer will use is certainly going to be better than the conversion rate charged through dynamic currency conversion.

A merchant may select dynamic currency conversion when processing your transaction. However, you have the right to opt out. If you catch it at the time, ask the merchant to void the transaction and re-run the purchase using local currency. If the merchant won't do so at the time, you always have the option to dispute the transaction with your card issuer.

How to dispute dynamic currency conversion charges

Despite your best efforts to avoid it, a merchant may still process your purchase using dynamic currency conversion. Although this usually happens when a merchant wants to artificially overcharge you, it isn't always the case. Sometimes a cashier is mistakenly trying to help you avoid fees by charging the transaction in your home currency.

Either way, you aren't stuck paying the higher transaction rate.

  • First, contact your card issuer and explain the situation.
  • You can also file an online dispute noting that you were overcharged for a purchase. If you go this route, you may need to calculate and provide the correct amount that you should have been charged using the appropriate credit card exchange rate.

If you can't resolve the situation through your card issuer, you can always contact your card network (Visa, Mastercard, Discover or American Express). Card networks have strict requirements for merchants for using dynamic currency conversion and can even enforce penalties for merchants that flaunt these rules.

Credit card exchange rates: Are they a good deal?

Credit cards often offer reasonable rates for currency exchange. Currency conversion rates are set by credit card networks. Some of these networks publish the exchange rate they use for converting purchases made in foreign currencies. You can take a look at Visa's currency exchange calculator and Mastercard's currency converter calculator.

For our example, we compared transactions made in euros on Sept. 22, 2021 for cardholders that use USD for their home currency. As you can see in our analysis below, the exchange rate is nearly identical to the rate tracked by a third-party website.

Company
EUR-to-USD exchange rate*
Markup
Third-party website1.173N/A
Mastercard1.1750.17%
Visa1.1750.17%

* rate as of 9/22/2021

Can you use a credit card to exchange money?

Yes, you can use a credit card to withdraw foreign currency. However, it's generally a bad idea as your card issuer will charge significant fees for doing so.

Even travel credit cards that waive foreign transaction fees on purchases will charge a cash advance fee on cash withdrawals. For example, the Chase Sapphire Preferred® Card charges a fee for cash advances. Plus, you have to pay up to a 24.99% Variable cash advance APR.

If you need to withdraw cash overseas, we recommend using your bank debit card. You can avoid international ATM cash withdrawal fees entirely by banking with a top bank for international travel.

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Can you save money on foreign exchange fees with a credit card?

The best way to reduce your transaction fees when overseas is by charging purchases to a card that waives foreign transaction fees. In addition to avoiding paying fees and dealing with local currency, you will earn points, miles or cash back on your purchases. Plus, it's safer to carry a credit card rather than cash.

Top cards with no foreign transaction fees

Recommended card
Earning rate
Annual fee
Chase Sapphire Preferred® Card
On Chase's Secure Website
Earn 5X points on travel purchased through Chase Ultimate Rewards®, 3X points on dining and 2X points on all other travel purchases$95
Show All Rows

Credit card exchange rate FAQs

Do credit cards charge for currency conversions?

Card networks, such as Visa and Mastercard, calculate currency conversion rates before providing the purchase details to your bank. The only fee that may be charged by your card issuer on overseas purchases is a foreign transaction fee, or a cash advance fee if you used your credit card overseas to withdraw local currency.

How does the exchange rate work with a credit card?

Card networks, like Visa and Mastercard, convert foreign transactions that you make into the currency you use (e.g., USD). The currency conversion rate is set by the card network and is typically close to the current market exchange rate.

How much do credit card companies charge for currency exchange?

Banks can charge a foreign transaction fee of 1% to 3% of the converted price. However, you can avoid these fees by using a credit card with no foreign transaction fees.

Do credit cards give the best exchange rate?

As long as you avoid dynamic currency conversion while making overseas purchases, you'll get a good exchange rate when using a major card network like Visa or Mastercard.

What exchange rate will my credit card use?

Credit card charges made in foreign currencies are converted to your local currency (e.g., USD) at an exchange rate set by the card network, like Visa or Mastercard. This rate is generally close to the exchange rate used for international banking.

For rates and fees of The Platinum Card® from American Express, please click here

These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

Advertiser Disclosure: The products that appear on this site may be from companies from which ValuePenguin receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). ValuePenguin does not include all financial institutions or all products offered available in the marketplace.

How We Calculate Rewards: ValuePenguin calculates the value of rewards by estimating the dollar value of any points, miles or bonuses earned using the card less any associated annual fees. These estimates here are ValuePenguin's alone, not those of the card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer.

Example of how we calculate the rewards rates: When redeemed for travel through Ultimate Rewards, Chase Sapphire Preferred points are worth $0.0125 each. The card awards 2 points on travel and dining and 1 point on everything else. Therefore, we say the card has a 2.5% rewards rate on dining and travel (2 x $0.0125) and a 1.25% rewards rate on everything else (1 x $0.0125).