What is a credit card conversion fee?

The usual credit card exchange rate used for purchases made abroad is 2-4%. Credit card networks (i.e. Visa, Mastercard, American Express, and Discover) generally use conversion rates based on interbank rates they select from customary industry sources on the business day prior to the processing date.

Visa and Mastercard provide calculators you can use to get an indication of the rate you may receive when using your card abroad.... read full answer

Other things to know before using your credit card abroad:

When shopping abroad, a merchant may ask you if you would like to convert your credit card transaction from the local currency into U.S. dollars. This is called Dynamic Currency Conversion (DCC). This conversion rate is very expensive for the cardholder and should be avoided. Generally, when overseas merchants make this offer, they will use a conversion rate that is far higher than the actual going rate – as much as 7 percent higher.

When making foreign transactions, you should also be aware of foreign transaction fees. These fees are tacked on to any point-of-sale purchases outside of the United States, or purchases made through an internationally-based merchant. So, it’s best to use a credit card with no foreign transaction fees in this case. Some good examples include the Capital One Venture Rewards Credit Card and Chase Sapphire Preferred® Card.

The best way to avoid foreign transaction fees is to use a debit or credit card that waives foreign fees when you're traveling abroad or making online purchases from international retailers. About 25% of the credit card offers on the market don’t charge foreign transaction fees, so there’s no reason to pay the extra charge.... read full answer

• Get a credit card with no foreign transaction fee
• Understand that foreign fees can be an issue even when you’re not traveling
• Have a no foreign fee debit card handy
• Avoid converting currency at airport kiosks
• Refuse offers for dynamic currency conversion

1. Get a credit card with no foreign transaction fee.

Foreign transaction fees are charged by credit card companies and the surcharge could add as much as 4% to purchases made outside the U.S. These fees also apply to online purchases processed through international merchants. If a card charges a foreign transaction fee, it will be listed in the card’s terms and conditions.

The 10 largest credit card companies all offer at least some cards without foreign transaction fees. Plus, some issuers don’t charge these fees on any of their credit cards. Using credit cards with no foreign fees rather than cash is also a convenient, inexpensive way to avoid having to convert physical currency while traveling abroad.

2. Understand that foreign fees can be an issue even when you’re not traveling.

You don’t have to be in another country to get hit with a foreign transaction fee. If you do business online or by phone through a merchant based outside of the U.S., make sure you pay for your purchase with a no foreign fee credit card to sidestep the surcharge. If you use a card with a foreign fee, you’ll be charged this fee on top of your transaction, the same as you would if you had made the purchase at a physical location abroad.

3. Have a no foreign fee debit card handy.

You may not be able to use credit cards for all your purchases abroad, so having a debit card will allow you to get cash in the local currency when you need it. Many debit cards also charge foreign transaction fees, though. So, make sure to bring a Visa or Mastercard debit card with no foreign fee when you head out of the country.

4. Avoid converting currency at airport kiosks.

Converting your cash at an airport kiosk outside of the U.S. may be convenient, but that convenience will cost you. Currency conversions at airport-based exchange stations come with extraordinarily high fees and less-than-favorable exchange rates.

Instead, use a no foreign transaction fee credit card for most of your purchases, and a no foreign fee debit card to withdraw physical currency. These options are very convenient, and each allows you to take advantage of low Visa and Mastercard currency conversion rates automatically.

5. Refuse offers for dynamic currency conversion.

Dynamic currency conversion (DCC) is a practice in which foreign merchants may offer to charge your purchase in U.S. dollars instead of the local currency. You should never accept these offers because if the merchant converts your payment for you, they may set their own high exchange rate to increase their profits.

With that, you know the basics of how to avoid unnecessary costs when spending money internationally. If you already have a credit card that charges foreign transaction fees, there’s not much you can do to avoid them, except for not using the card abroad. Consider applying for a travel credit card with good ongoing rewards and no foreign transaction fees, instead. There are plenty of options to choose from.

A foreign transaction fee is charged when you buy something while traveling abroad (or from a merchant based overseas), while the currency conversion fee is a surcharge from an overseas merchant to convert transactions into dollars. In other words, the currency conversion fee inflates the currency exchange rate.

Most cards charge a foreign transaction fee of 3%, but there are some ... read full answercards without foreign transaction fees, like the Capital One Venture.

The merchant is required to ask you before using currency conversion, which usually adds another 3-10% to your transaction. If you decline, your credit card payment network will do the conversion. The exchange rate via the card network is always better.

To avoid both, get a credit card with no foreign transaction fees and decline the currency conversion.