Foreign Transaction Fee: What is it? How does it work?

If you've used your credit card outside of the U.S., you've no doubt come across foreign transaction (FX) fees. It’s a pesky little charge, which is often buried deep in the terms & conditions of your credit card agreement. What exactly are these transaction fees? Do they all cost the same? Are there cards that don't charge this? We've researched and assembled this guide to help consumers find answers to these questions, and better understand foreign transaction fees and how they work.

  • Overview: A breakdown of everything there is to know about how foreign transaction fees work, how to spot them in your cardmember agreement, and when one can appear on your bill
  • Dynamic Currency Conversion: When you buy something overseas, you have the option of being billed in USD, instead of the local currency. This is generally a bad idea, and here's why we recommend you avoid it
  • Foreign Transaction Fees by Issuer: Credit card FX fees vary greatly between issuers, and generally average 3%. Some, like Capital One, absorb the charge so their cardholders don't ever have to worry about them
  • The Takeaway: A summary of the key points of the article

The Foreign Transaction Fee: an Overview

A foreign transaction fee, sometimes referred to as an FX fee, is a surcharge on your bill that appears when you make a purchase that passes through a foreign bank, or is in a currency other than the U.S. dollar (USD). The most common FX fee that credit card issuers tack onto your bill is around 3%.

The foreign transaction fee is composed of two parts. The first is charged by the credit card network (Visa, MasterCard, etc.) while the other part is imposed by the issuer (Citibank, Chase, etc.). Visa and MasterCard both charge a fee of 1%. Regardless of the type of credit card, this fee is applied to all transactions. Depending on the credit card you use, some issuers will choose to add a charge on top of this fee - usually between 2% and 3% - while others will not add anything and even go as far as absorbing the network’s fee, so that you don’t have to pay anything.

The easiest way to understand the process is to look at an example transaction. Imagine that you pay $100 for a dinner, while on vacation in Holland, using a 2% cash back card on the Mastercard network. First, Mastercard will charge 1% on top of the cost of your dinner. Then, the card's issuer will charge another 2% on top of that. Therefore, the actual cost of your dinner comes out to be $100 + (0.01*100) + (0.02*100) = $103.

Remember that exchange rates factor in when dealing with foreign transactions. Just because an item abroad costs €10, doesn’t mean your credit card will be charged $10. Both MasterCard and Visa calculate exchange rates to properly convert all foreign-denominated transactions to USD. Your FX fee is charged to the USD transaction, after the conversion has taken place. Some merchants will ask if you want to be given the cost in USD upfront, through a process called 'Dynamic Currency Conversion'. We advise against this, and discuss it at length below.

How to Spot Credit Card Foreign Transaction Fees

Chances are, unless a credit card has no foreign transaction fee, this isn't something issuers advertise upfront to consumers. In order to figure out your credit card's FX fee, you must look at the terms and conditions (sometimes called 'Pricing & Information). The foreign exchange fee will be listed under the 'Fees' section - right by cash advance/balance transfer fees. You can see how this looks like in action, in the image below.

This excerpt shows where consumers can find the Foreign Transaction Fee on their cardmember agreement

When Do I Get Charged an FX Fee? What Counts as a Foreign Transaction?

The question of what exactly constitutes a foreign transaction may be a bit trickier than you would think. Just little over a decade ago, for a transaction to be considered foreign, it had to occur on foreign soil. However, in recent years, credit card networks have begun flagging transactions as 'foreign' if, at any point, they pass through a foreign bank. This means that some purchases will count as being foreign, even if you make while in the US - for example, an online purchase. Even if your transaction is executed in USD, it may have been routed through a foreign bank. And very few places will actually provide that information, making it near impossible for consumers to find out ahead of time.

One credit card user, Chelsea, shared with us her story about being charged a FX fee after purchasing an airline ticket through Kayak.com. Chelsea says she was careful, and checked that at the end of the purchase her total was presented in US dollars. When she saw the price, Chelsea thought she was in the clear and went ahead with the transaction. At the end of the month, her credit card bill came back with an FX fee tacked onto her bill.

"When I called the company, I told them my situation," Chelsea reported. "Thankfully, they refunded me the charge and that was it," she says, "but it has definitely made me suspicious of buying online now." Chelsea's story serves as the model example for why all consumers, regardless of their spending habits, should be aware of foreign transaction fees. Knowing they exist can help you spot, understand, and deal with them the next time they show up on your bill.

Do FX Fees Count When Earning Credit Card Rewards? 

Part of what makes foreign transaction fees so annoying is that, no, they do not count towards rewards spending. Going back to our example of using the 2% cash back card to pay for a $100 dinner: you can get cash back only on that $100 bill, not on its true cost of $103. The fee will be listed separately on your bill. Just like annual fees, interest, and late fees, when you make a payment towards an FX fee you do not get to reap any benefits from it. In fact, what they do is eat into your rewards. Some of the higher reward rates from the top general-purpose credit cards tend to hover around the 2% level, and the 3% FX fee will erode your rewards, and leave you net negative.

Dynamic Currency Conversion: Charges in USD vs Local Currency

Sometimes when you're travelling abroad, your merchant may give you the option to be charged for your transaction in USD, instead of the local currency. This process is referred to as Dynamic Currency Conversion (DCC). We advise against doing so, for a number of reasons.

Firstly, DCC results in unfavorable exchange rates. When a merchant processes your payment using DCC, they get to set the currency exchange rate. They are incentivized to pick an unfavorable rate, in order to pad their profits. If you choose to go through with the transaction using the local currency, the conversion will be handled automatically by your credit card network. Using their services minimizes the risk of getting a biased rate.

Even if you use Dynamic Currency Conversion, you may still end up getting charged a foreign exchange fee. Some credit card issuers will charge you a fee, even if the transaction is performed in USD. All that needs to happen is for the transaction to pass through a foreign bank, and it immediately gets flagged as being foreign. How can you know how your bank handles foreign exchange fees? In the terms of service, they will specify if there is a fee for foreign transaction in U.S. dollars, or local currency as shown below.

This image shows how to tell if you get charged an FX fee for a transaction in local currency or USD

If your card issuer only specifies local currency fees, this means they do not charge for transactions in US currency, and vice versa. Due to the Truth in Lending Act, credit issuers in the U.S. are required to disclose all fees in the terms & conditions. Even if your issuer does not charge for transactions in USD, DCC is a bad option! The exchange rate chosen by the merchant might increase your price more than the 3% charged by your card issuer.

Lastly, we want to point out that all consumers have a right to turn down DCC from a merchant offering it. Before signing any receipts, make sure the total on your credit card receipt shows up in the foreign currency. If it doesn't, inform the merchant that you do not wish to be charged in USD, but the local currency instead. If two separate currencies appear on the receipt, make sure to indicate you prefer to be charged the local currency.

Foreign Transaction Fees by Credit Card Issuer

Some credit cards handle foreign exchange fees more favorably for consumers than others. Most issuers will have at least 1 or 2 credit cards to offer, where these fees are covered by the issuer.

Issuer Typical FX Fee No-FX Fee Credit Cards
American Express 2.70%
  • The Platinum Card® from American Express
  • Delta Reserve® Credit Card from American Express
  • Gold Delta SkyMiles® Credit Card from American Express
  • Platinum Delta Skymiles® Credit Card
Bank of America 1% to 3%
  • BankAmericard® Travel Rewards
Barclaycard 1% to 3%
  • Princess Cruises Rewards Visa
  • Barclaycard Arrival Plus™ World Elite MasterCard®
  • Barclaycard Arrival™ World MasterCard® 
  • The Hawaiian Airlines® Business MasterCard® 
  • AAdvantage® Aviator™ Red MasterCard®
  • AAdvantage® Aviator™ Silver World Elite MasterCard®
Capital One 0%
  • All Cards
Chase 3%
  • Chase Sapphire Preferred® Card
  • Both United MileagePlus Cards 
  • Marriot Rewards Premier
  • British Airways Visa Signature 
  • Southwest Airlines Rapid Rewards Premier 
  • IHG Rewards Club Select Visa 
  • Hyatt Card
  • Fairmont Visa Signature
  • Ritz-Carlton Rewards
Citibank 3%
  • ThankYou® Premier
  • Citi Prestige®
  • Citi® Hilton HHonors™ Reserve 
  • Citi Executive / AAdvantage World Elite MasterCard 
  • Expedia®+ Voyager
Discover 0%
  • All Cards
US Bank 3%
  • US Bank FlexPerks® Travel Rewards
Wells Fargo 3%
  • Wells Fargo Propel World American Express®

You'll note that Capital One and Discover are the standout issuers. None of their credit cards charge users a foreign exchange fee! However, in the case of Discover, this comes with a caveat. While you do not have to pay an FX fee on their cards, you are also unlikely to use one of their cards when travelling abroad. This is because the Discover network is not widely accepted by vendors abroad.

The other odd man out is American Express. They charge slightly lower FX fees than other card issuers - just 2.7%. Amex has a bit more wiggle room in deciding what to charge consumers, since they act as both a credit card issuer AND a network. While other card companies like Chase, have to deal with separate fees from their MasterCard/Visa networks, American Express has full control of the entire payment pipeline.

The Takeaway

If after reading this article (or after simply scrolling down to the very end), you find yourself unsure of anything, just keep the following two points in mind:

  • If you're travelling abroad, be aware of how your credit card issuer is charging you for the use of your credit card overseas. This can be found in your cardmember agreement and in the Terms & Conditions which are listed online
  • Avoid dynamic currency conversion. Foreign merchants will want you to let them choose your exchange rate, but this oftentimes leads to an unfavorable outcome for the consumer. On top of this, you might get stuck with an FX fee, despite the transaction taking place using U.S. dollars
  • While all issuers have some credit card offerings without foreign transaction fees, Capital One and Discover cards don't charge FX fees

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