Credit card fees can be confusing and when you throw terms like foreign transaction and currency conversion fees into the mix, it’s a minefield.
To help you navigate this territory, our currency conversion specialists at The Currency Shop have taken the hassle out of the research.
When it comes to discerning the difference between foreign transaction and currency conversion fees, here are some basics:
Foreign transaction fees (and how to avoid them)
This fee is charged by some credit card issuers on every purchase that you make outside of the country of origin of your credit card company. If your card issuer carries this fee, expect to pay around 3% of the purchase price. Foreign transaction fees are calculated on the purchases you make while traveling to other countries and can also crop up when you buy via online orders with an overseas seller.
3% might not sound like a huge amount but when some other credit cards don’t have the same fees, wouldn’t you like to know which one can put more dollars in your pocket?
Travel cards are generally free of these fees but it’s important to check, rather than just assume.
Currency Conversion Fees Explained
This fee is also known as Dynamic Currency Conversion (DCC) and is the amount that’s charged by a merchant to convert overseas transactions to your own country’s currency. If you’re an Australian who travels to Italy, for example, your bill may be delivered to you in AUD, instead of euros. This allows you to view your purchases in your local currency, without stressing about how to convert the currency. Many merchants add significant mark-ups by using a less friendly conversion rate than your credit card issuer would generally make available. Be warned.
To help protect you, your overseas merchant needs to ask your approval before using DCC and, really, it’s not usually in your favour. Be sure to compare the DCC rate against your issuer’s rate and choose the most cost-effective option to suit you:
Avoid Double Fees
You could be charged one fee for foreign transaction and another for currency conversion. To avoid this, get a credit card with no foreign transaction fee and just refuse the DCC when the merchant you are using asks you if you want to utilise it.
To find out more about foreign exchange and currency conversion, call our team at The Currency Shop today.