Quick Takeaway
- What is a foreign transaction fee?
- How do foreign transaction fees work?
- Is foreign currency the same as a currency conversion fee?
What is a foreign transaction fee?
A foreign transaction fee is charged by your bank or credit card issuer when a purchase is processed outside the country or billed in a foreign currency. Typically ranging from 1% to 3% of the transaction amount, this fee is added to the exchange rate and often appears as a separate line item on your credit card statement, which can make it easy to overlook.
Foreign transaction fees often consist of two parts. One portion should be charged by your card issuer, such as Chase, Capital One, Bank of America, or Citi. The other portion will come from the payment network, including American Express, Discover, Mastercard, or Visa.
Many consumers do not realize this fee can apply even when there is no international travel. You will be charged a foreign transaction fee when shopping on international websites, subscribing to foreign-based services, or purchasing from global marketplaces if a non-U.S. bank processes payment. Even if prices are listed in dollars, the transaction may still be classified as a foreign transaction.
How do foreign transaction fees work?
Foreign transaction fees are based on how your payment is processed in the global banking system, not on your physical location. When you use your credit card, the payment is routed through a network like Visa or Mastercard and processed by one or more banks. If any step in this process occurs outside the U.S, your purchase may be treated as a foreign transaction and incur a foreign transaction fee.
Foreign transaction fees may apply under several conditions:
- When you use your credit card while traveling in another country
If you buy something in another country, the payment usually goes through a foreign bank and is processed in a different currency. As a result, your credit card company may treat it as a foreign transaction and charge a fee. - When you shop online from the United States
Even if you’re in the U.S., the store’s payment processor or bank might be in another country. If your payment is routed internationally, your card issuer may still charge a foreign transaction fee, even if the price is in U.S. dollars.
Is foreign currency the same as a currency conversion fee?
Foreign transaction fees and currency conversion fees are often confused, but they are distinct charges. Card issuers apply foreign transaction fees to purchases made outside the United States. Currency conversion fees are charged when funds are exchanged between currencies. Both fees may apply to a single purchase. For example, if you buy an item in a foreign currency, the card network converts the amount to U.S. dollars, and your bank may add a foreign transaction fee. Some merchants offer payment in your home currency, but this usually results in a less favorable exchange rate and additional charges. Understanding these fees can help you save money and make informed payment choices when shopping or traveling abroad.
Why can you be charged without traveling abroad?
Many assume foreign transaction fees apply only when traveling abroad, but they can also apply to purchases made in the United States.
Foreign transaction fees depend on how your payment is processed, not your location. You might see these fees in situations like:
- Shopping on international websites: Purchases from stores or payment processors outside the U.S. may be processed as international transactions.
- Paying for foreign-based streaming or software subscriptions: Some digital services and cloud platforms bill through companies located outside the U.S., regardless of where you use them.
- Purchasing from global marketplaces: Payments to international sellers may be processed through banks outside the U.S.
- Completing a transaction with a non-U.S. payment processor: Companies using foreign payment systems may classify your purchase as a foreign transaction.
- Paying in a foreign currency, even online: Payments in currencies other than U.S. dollars typically require conversion by your bank, which may result in a fee.
Finsery Pro Tip
How much are foreign transaction fees?
Foreign transaction fees are typically a percentage of what you spend. Most U.S. credit card companies that charge this fee use a rate between 1% and 3%. Even though this may seem small, it applies to every international purchase, so the costs can add up quickly.
Here’s an example to show how foreign transaction fees work with common U.S. credit card companies when the fee applies:
Typical Foreign Transaction Fee Breakdown
| Bank / Card Issuer | Network Fee | Issuer Fee | Total Fee | On $100 Purchase |
|---|---|---|---|---|
| Captial One | - | - | - | - |
| Discover | - | - | - | - |
| American Express | Included | ~2.7% | ~2.7% | $2.7 |
| Bank of America | ~1% | ~2% | ~3% | $3 |
| Chase | ~1% | ~2% | ~3% | $3 |
| Citi | ~1% | ~2% | ~3% | $3 |
| PNC | ~1% | ~2% | ~3% | $3 |
| U.S. Bank | ~1% | ~2% | ~3% | $3 |
What this means for your spending
- If your card charges a 3% foreign transaction fee, you’ll pay about $3 extra for every $100 you spend.
- One international trip or a year of shopping online from abroad could cost you $50 to $100 or more in fees.
- Some credit card companies, such as Capital One and Discover, don’t charge foreign transaction fees on any of their cards.
Keep in mind that these fees apply only if your card charges a foreign transaction fee. Many banks offer travel or premium cards that don’t have this fee, which can help you save money if you shop internationally or travel overs
How to avoid foreign transaction fees?
If you want to avoid foreign transaction fees, choose a credit card that doesn’t charge them. Many travel and rewards cards skip the usual 2% to 3% fee, so you’ll only pay the exchange rate when you buy something abroad. When you travel, pay in the local currency to avoid extra fees, and limit ATM withdrawals to reduce additional fees. Before your trip, check your card’s fee details so you don’t get any surprise charges and can save money.
To avoid foreign transaction fees, use a credit card that does not charge them. Many travel and rewards cards waive the typical 2% to 3% fee, allowing you to pay only the card network’s exchange rate. These cards usually offer the same rewards, protections, and benefits as standard credit cards. Selecting the right card before you travel can help you save on international purchases.
When shopping abroad, pay in the local currency. This lets Visa or Mastercard convert your funds at a competitive rate. Paying in U.S. dollars can add markups. Using local currency increases price transparency and reduces hidden fees.
Dynamic currency conversion happens when a merchant or ATM offers to charge you in U.S. dollars instead of the local currency. While this may seem convenient, it often includes hidden fees. Declining DCC lets your card network process the exchange at a better rate and helps you avoid extra costs.
Withdrawing cash from foreign ATMs often results in high transaction fees. To minimize costs, withdraw larger amounts less often and plan withdrawals in advance. When possible, use your card for purchases instead of cash withdrawals.
Some banks offer debit cards that refund international ATM fees, helping you save money when accessing cash abroad. If you travel frequently, these refunds can be significant. Before your trip, check whether your bank provides this benefit.
If you plan to travel or shop in another country, take a moment to check the terms for your credit and debit cards. This way, you’ll know about any fees ahead of time. Some cards have foreign transaction fees, but others don’t. Looking over your options now can help you pick the best card for your trip. Staying informed is a simple way to keep your money safe.
Most of the time, you cannot get foreign transaction fees back because they are built into the card’s terms. But you might get a refund if the fee was charged by mistake, if the purchase was wrongly marked as a foreign transaction, or if your card says it does not have these fees. Always call your card company if you see a charge that should not be there.
Can foreign transaction fees be claimed as a tax deduction?
Yes, but only in certain cases. In the U.S., you usually can’t deduct foreign transaction fees for personal expenses like travel, shopping, or subscriptions. But if the fees are part of a real business activity, they might be deductible as regular business expenses. This can include fees for paying foreign vendors, international software subscriptions, currency exchange, or foreign payment processing, as long as the expense is tied to earning taxable business income and you keep good records.
It’s important to note that foreign transaction fees are not treated as foreign income taxes, so they do not qualify for the Foreign Tax Credit. Instead, when eligible, they are deducted as business expenses, reducing taxable income rather than offsetting tax liability dollar-for-dollar.
