How to Avoid Foreign Transaction Fees

How to Avoid Foreign Transaction Fees from Credit Cards

Fortunately, foreign transaction fees are becoming a thing of the past for many credit card companies. With so much competition, credit card issuers are choosing to release more options for consumers, such as frequent fliers and wealthy spenders, who spend a lot of money abroad and often get hit with high fees in the process.
 
A 2016 survey by CreditCards.com revealed that 39 out of 100 credit cards did not come with foreign transaction fees.¹ So researching and comparing the various credit card options available will help you avoid these fees and potentially save a substantial amount of money when shopping internationally.
 
Just be sure to read the fine print associated with any credit card or debit card that you are planning on getting. Even if there aren’t any foreign transaction fees, there might be other aspects about a card, such as annual fees, that could still hurt your bottom line. On top of that, you might get hit with a high margin on the exchange rate, even if you are able to dodge the transaction fee—and that margin could cost you up to 5%. 

Foreign Transaction Fees at ATMs

While travelling, you might end up withdrawing some much-needed cash at a foreign ATM, but you could be hit with a fee, even if you have a credit card that does not charge fees for international purchases.
 
These ATM withdrawal fees will vary. But if you end up withdrawing cash in a local currency from an ATM while abroad, you might be charged a flat international surcharge. This is likely to happen if you use an ATM at a bank that is not affiliated with your domestic bank.
 
You might also be hit with a currency conversion fee. This is usually a percentage, such as 3%, of the amount that you are withdrawing. And on top of all of that, you might also be charged an ATM access fee by the company that owns the foreign ATM that you are getting your cash from.

How to Avoid Foreign Transaction Fees at ATMs

Ultimately, you should read your bank’s terms and policies regarding the use of a foreign ATM. In this way, you will know what you should expect and how you can avoid being charged these fees.
 
For example, your bank might waive certain ATM fees if you make it a point to withdraw cash from one of its partner banks abroad. So this is the first step that you can take if you want to avoid these fees.
 
A bank within the Global ATM Network could help you save on fees too. This network of big banks lets consumers withdraw money from their ATMs for free or for a lower fee. You just have to be sure that you can find and use partner ATMs; otherwise, you will be hit with high fees for using an ATM that is outside of the network.
 
Also, if your bank has branches internationally, you might be able to avoid ATM fees by using them. It is a good idea to ask your local bank about their coverage areas so you can avoid fees in certain parts of the world. You might find, for example, that your bank does not charge fees in the country you are planning on visiting, or you might realise that you need to find an alternative because your bank does charge fees there. Doing the research before you head off will help you make the soundest decisions.

Don’t Convert Your Money at the Airport

While you might be tempted to use one of the exchange bureaus in the airport because they are in a convenient location, it is best to avoid these if you wish to save money. Their virtual monopoly means you’re unlikely to get a good exchange rate, so it is best to get your currency exchanged elsewhere, such as at your domestic bank before you leave for your trip. In other words, unless you really have to use the exchange bureau at the airport, don’t do it.

Opt to Use the Local Currency Whenever Possible

If you are given the option of using the local currency when you are paying with your credit card in another country, take it. This is referred to as dynamic currency conversion. So, for example, if you are buying some souvenirs in Spain and you are given the option of being charged in euros rather than in US dollars, go for it. The majority of the time, a hotel or foreign merchant’s conversion rate for changing those euros into dollars will be higher than your credit card company’s rate. Sometimes merchants will charge upwards of 7% to convert the money. So it will work out in your favour if you leave it up to the credit card to make the currency conversion instead.² 

How to Avoid Foreign Transaction Fees when Shopping Online

Whenever you shop from an international merchant online, you can avoid high foreign transaction fees and currency exchange fees by using an online transfer service like OFX. Rather than paying with your credit card and incurring extra charges, you can have OFX send your money from your bank account directly to the merchant’s account.
 
Transfers with OFX can be set up at any time and from anywhere, so even if you are shopping in the middle of the night, you can set up this payment method to save money. Customer support is also available 24/7 in case you need assistance, and most transfers are completed within 1-2 business days.
 
With OFX, you will also be able to avoid the high margins (up to 5% on the exchange rate) and fees that banks charge for the same types of money transfers. You can use a currency converter to see exactly how much money you need to send to complete your order, and you can rest assured that every transfer will be secure.
 
Plus, for large investments that you can pay over time, you can set up recurring transfers. You can also use a Forward Contract to lock in a great exchange rate and make the transfer at a later date if that is what you prefer.

Foreign Transaction Fees While Living Abroad

If you are planning on living abroad temporarily for school or for work, you will have even more expenses to cover on a day-to-day basis, which means those foreign transaction fees will add up more quickly.

 

So even if you don’t mind paying the fees while you are on a short trip abroad, if you are settling down for a while in another country, signing up for a local bank account and local credit and debit cards could help you save money.