## Foreign Transaction Fees Explained

If you are using your credit card to make purchases in foreign countries overseas, you will likely have to pay a foreign transaction fee. This fee is applied when you make your credit or debit card purchase to account for the currency exchange rate. That's why they used to be called a currency conversion fee. These fees vary between banks, credit card issuers and even the type of card you have, so it's wise to do a little research before you travel overseas and start making card purchases.

However, keep in mind that these fees can also be applied to the online purchases made from your home country when a transaction is processed by a foreign vendor. In these cases, the transaction is processed in the local currency of the foreign country and a fee may be applied.

## How Much Will I Pay?

In the U.S., foreign transactions fee are usually three percent of the total amount charged. The foreign transaction fee is divided into two categories. The first part is charged by the credit card network and the other part is charged by the issuer. If you are using Visa or MasterCard (credit card network), the fee charged will be one percent of the bill and it is universal to all types of transactions. The credit card issuer then usually charges a higher fee that ranges from two to three percent.

The scenario below explains the situation when you have to pay the transaction fee on the purchase made in the foreign country.

Suppose you paid \$100 for lunch in a hotel in Holland and you are using a credit card provided by Citi. What will be the foreign transaction fee and how much will you pay total? MasterCard is going to charge one percent of the bill: \$100 x 0.01 = \$1.00. Citi is going to charge you two percent of the bill: \$100 x 0.02 = \$2.00. So overall, you'll pay \$3.00 in fees and a total of \$103 for your lunch.

## How to Avoid Foreign Transaction Fees

The most logical way of avoiding foreign transaction fees is to get a credit card with no foreign transaction fees. Often, these cards are also travel cards with various other perks, such as airline miles rewards, hotel rewards, or other travel rewards. If you are a frequent traveler, It's a good idea to apply for and take such a card with you when you travel overseas.

Just remember that each card issuer has its own set of fees. If having no foreign transaction fees is an important part of the credit card you're applying for, make sure you read up on the card's policies to avoid added expenses.