Understanding and Avoiding Foreign Transaction Fees on Debit Cards

Foreign transaction fees can be an unexpected and unwelcome addition to your travel expenses. These fees are charges imposed by credit card issuers, banks, and other financial institutions when you use an electronic payment card to make a purchase in a foreign country or to buy goods and services in another currency. Whether you’re using a debit card or a credit card, these fees can add up quickly and impact your travel budget.

What Are Foreign Transaction Fees on Debit Cards?

Foreign transaction fees are charges that you may incur when you use your debit card for point-of-sale purchases, ATM withdrawals outside the United States, or when you make purchases in a foreign currency. These fees help banks and credit card companies cover the costs of converting currencies and processing international transactions. The fee may include charges from your card network, such as Visa and Mastercard, and your bank.

While many banks have eliminated foreign transaction fees on debit card transactions, some still impose these charges. It’s essential to check with your bank to see if they charge transaction fees, especially if you plan on traveling abroad soon. If your bank does charge these fees, it may be worth considering switching to a bank that doesn’t.

How Much Are Foreign Transaction Fees?

Foreign transaction fees typically range from 1% to 3% of the transaction price. This means you could pay up to an additional 3% on hotels, food, entertainment, and transportation while visiting another country. For example, if you use your debit card to spend $5,000 on a vacation abroad, you could owe an extra $150 in foreign exchange fees.

In addition to foreign transaction fees, you may incur currency conversion fees from your bank, payment networks, ATM operators, or merchants to convert transactions into U.S. dollars. This process is called dynamic currency conversion (DCC). Currency conversion fees are often 1% of the purchase price, and both fees may be combined and listed on your statement as a foreign transaction fee.

For example, if you’re buying clothes while visiting Portugal, the merchant may offer to use DCC and show you the price in U.S. dollars, not euros. If you agree, the merchant will use the conversion rate provided by its DCC service provider. If you refuse, your payment network, such as Visa or Mastercard, will convert the currency, and you’ll see the conversion on your statement in U.S. dollars.

How to Avoid Foreign Transaction Fees on Debit Cards

Before you venture abroad or pay for online transactions with foreign merchants, make sure your debit card doesn’t charge foreign transaction fees. If it does, consider the following tactics to avoid incurring a foreign transaction fee:

Apply for a Credit Card That Doesn’t Charge Foreign Transaction Fees

Many credit cards, including most travel cards, don’t charge foreign transaction fees. Travel credit cards also often provide a wide variety of valuable benefits and perks, such as bonus points, access to airport lounges, and discounts on TSA PreCheck. Using a card comparison tool can help you discover cards that you may qualify for and easily compare their features.

Exchange Currency Before You Leave Home

Another way to avoid transaction fees is to pay for your purchases in cash when you travel internationally. However, exchanging your U.S. dollars into the local currency while abroad can be costly. Your best bet may be to visit your bank in the U.S. before you leave and exchange your U.S. dollars for the local currency of your travel destination. Many banks and financial institutions have a low foreign exchange fee or don’t charge a fee, which could save you considerably.

Keep in mind, carrying large amounts of cash can be risky, so you may only want to have a small amount of spending money when you arrive. That way, you can avoid potentially costly airport kiosks or international ATMs to get cash upon arrival.

Switch to a Checking Account Without Foreign Transaction Fees

If your bank charges foreign transaction fees on debit cards, consider opening a checking account with a bank that doesn’t charge the fee, especially if you travel often. A fee-free debit card could come in handy abroad, especially if a merchant doesn’t accept credit cards or charges extra to use them.

For example, the Schwab Bank High Yield Investor Checking account offers unlimited ATM fee reimbursements domestically and internationally. The account doesn’t charge foreign transaction fees or monthly fees. It also offers a 0.45% annual percentage yield (APY) which is unique for a no-fee checking account.

If you don’t want to switch banks or add another bank account, ask your bank if they have branch locations, partner banks, or network ATMs where you’re traveling. If so, you may be able to access cash while abroad without incurring a fee.

Find the Right Card With No Transaction Fees

Thankfully, foreign transaction fees are less common with debit cards than they used to be. Similarly, most travel credit cards don’t charge you these types of fees. With that in mind, it might be helpful to check your debit and credit cards’ terms and conditions to determine if you’ll incur foreign transaction fees while you’re away. That way, you can plan for how you’ll pay for transactions or withdraw cash while abroad.

You may avoid foreign transaction fees and enjoy other travel perks and protections by opening a new credit card account. Before applying, consider the card’s minimum credit score requirements, annual fees, rewards, and other factors. A card comparison tool can help you find the best credit cards that meet your objectives.

Conclusion

Foreign transaction fees can be a significant expense when traveling abroad or making purchases in a foreign currency. By understanding these fees and taking steps to avoid them, you can save money and make the most of your travel budget. Whether it’s applying for a credit card that doesn’t charge foreign transaction fees, exchanging currency before you leave home, or switching to a checking account without foreign transaction fees, there are several strategies you can use to minimize these costs.

At O1ne Mortgage, we understand the importance of managing your finances effectively, especially when traveling. If you have any questions or need assistance with your mortgage needs, don’t hesitate to call us at 213-732-3074. Our team of experts is here to help you navigate the complexities of mortgages and ensure you get the best possible service.