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Updated July 7, 2016

Foreign Transaction Fee: What to Know Before You Travel Abroad

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Before you go on a trip overseas, be sure you have a credit card with no foreign transaction fees. Read on to learn how to save money on international travel.

Don’t let those pesky foreign transaction fees ruin your overseas vacation.

If you're planning a trip overseas, footing the bill with a travel rewards credit card is an excellent way to earn miles or points that can you use towards your next outing. The trick is to make sure your card won’t cost you money in the form of foreign transaction fees.

A number of card issuers charge this fee on every purchase you make on your card outside the U.S. Understanding how these fees are calculated and how to get around them can help you save money every time you travel abroad.

© Sonny Abesamis (CC BY 2.0) via Flickr

WHAT IS A FOREIGN TRANSACTION FEE?

A foreign transaction fee is a surcharge that applies when you make a purchase that's processed outside the U.S. These fees cover the cost of converting one currency to another. The card network that handles the transaction charges your bank a fee for completing it. The bank that issued your card then passes the cost on to you at an increased rate.

HOW MUCH DO FOREIGN TRANSACTION FEES COST?

Foreign transaction fees are calculated as a percentage of the total purchase amount; they typically range from 1% to 3%, depending on the card you're using. That means you can expect to pay anywhere from $10 to $30 for every $1,000 you spend internationally. If you're paying fees at the higher end of the scale, they can easily negate the value of any points or miles you're earning.

For example, if your current card pays double rewards on every dollar you spend, every $1,000 in purchases would yield 2,000 miles or points. Assuming your rewards are converted on a 1:100 basis, they'd be worth $20. If your card charges a 3% foreign transaction fee, you're not only zeroing out the rewards you've earned, but you're also going into the hole another $10. That's why it's so important to look for a card with no foreign transaction fees.

CHOOSING THE RIGHT TRAVEL REWARDS CARD

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When you're comparing travel rewards credit cards that have no foreign transaction fee, it's easy to get lost in all that fine print. We've narrowed down the 3 most important things to consider before you settle on a card.

  • Rewards structure: Having a rewards card really only works to your advantage if you're able to use it regularly. That being said, the card you choose should offer a rewards structure that complements your spending style and reflects how you plan to use the bonuses you're earning. For instance, a card that pays cash back when you shop at grocery stores or gas stations won't do you much good if your top priority is earning discounts on flights or hotel stays.

    Aiming for a travel credit card with a tiered rewards system makes getting the most bang for your buck easier. Such cards typically offer double or triple rewards when you spend in certain categories, such as hotels, airfare or restaurants, and 1 mile or point on everything else.

    Many travel rewards cards also offer signup bonuses for new members that allow you to earn a substantial number of miles or points right away. Typically, there's a minimum spending requirement you'll have to meet to qualify for the bonus, but if you're planning a big trip, snagging those extra rewards shouldn't be a problem.

  • Rewards redemption: Aside from looking at how many rewards you stand to earn with a particular card, you also need to think about how they can be used. If you're a member of a frequent flyer program, for example, and you have a card that's branded to a particular airline, check if your points or miles can be converted for flights on other carriers.

    Most travel rewards cards allow you to redeem miles or points for a variety of things, including hotels, flights, rental cars, and vacation packages. Just pay close attention to any blackout dates or travel restrictions that limit your ability to use your rewards.

  • Annual fee: While there are no-annual fee travel rewards cards there, many charge a premium for being a card member. If you're looking at a hefty fee for a particular card, you'll have to decide whether the rewards you can potentially earn are worth it.

    Ideally, you want to go with a card that will allow you to earn back the annual fee in rewards and then some. If your card carries a $95 fee, for instance, and you earn double miles on flights, you'd have to spend $5,000 on airfare each year to cover it. If you don't think you'll charge enough to cover the annual fee, you're better off going with a card that doesn't have one at all.

FEATURED DEAL FOR TRAVELERS

Chase Sapphire Preferred
Apply for Chase Sapphire Preferred Card
The Chase Sapphire Preferred card packs a lot of punch for frequent travelers, including a $0 foreign transaction fee. The card offers a generous points structure and multiple ways to redeem points. There is a trade-off, however, since you'll pay an annual fee ($0 intro annual fee for the first year, then $95).

Because it offers so many advantages, you'll need to have excellent credit to qualify. All that aside, here are 5 good reasons to choose the Sapphire Preferred card for your next trip.

  • Big bonus for new members: Earn 50,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $625 toward travel when you redeem through Chase Ultimate Rewards®.

  • Additional opportunities to earn more bonuses: You'll also get an extra 5,000 bonus points by adding an authorized user to your account, as long as they make at least 1 purchase in the first 3 months.

  • Double the rewards on both travel and dining: Sapphire Preferred members earn 2X points on travel and dining at restaurants & 1 point per dollar spent on all other purchases worldwide. And there's no limit on the number of points you can earn.

  • Multiple redemption options: Cardholders have several methods of redeeming points, starting with the Ultimate Rewards program. Here, you can use your points for travel, gift cards, cash back, or merchandise, and you'll get a 20% discount anytime you book flights, hotels, car rentals, or cruises through the portal. You also have the option of transferring your points on a 1:1 basis to a number of major frequent traveler programs, including United MileagePlus, Ritz-Carlton Rewards, and Marriott Rewards.

  • Built-in travel protections: The Sapphire Preferred card includes a number of travel benefits at no cost, including trip cancellation insurance, a car rental collision damage waiver, travel accident insurance, travel and emergency assistance services, reimbursement for lost luggage, baggage delay insurance, and reimbursement for any personal expenses incurred if your trip is delayed for more than 12 hours.

OTHER TRAVEL REWARDS CARDS TO CONSIDER

If the Chase Sapphire Preferred card isn't quite what you had in mind, there are plenty of other travel rewards cards to choose from. Here's a look at some other no foreign transaction fee alternatives we recommend.

  • Capital One Venture offers a one-time bonus of 50,000 miles if you spend $3,000 on purchases within three months of account opening. 50,000 miles is equal to $500 in travel. This card earns 2x miles per dollar on all purchases. You can redeem miles toward travel purchases on any airline, hotel, or car rental. There are no foreign transaction fees. You get up to $100 credit for Global Entry or TSA Pre✓®. There is a $95 annual fee ($0 intro annual fee for the first year).

  • If you want to avoid an annual fee: Discover it Miles will match all the miles you've earned at the end of your first year. This offer is limited to new cardmembers only. This card earns 1.5x miles on all purchases and has no annual fee.

    Plus, Discover will pay you back for your in-flight WiFi fees, up to $30 a year, through an automatic statement credit.

BOTTOM LINE

Paying excessive foreign transaction fees can put a serious damper on your vacation plans, but dodging them isn't difficult if you've got the right credit card.

We like the Chase Sapphire Preferred based on its rewards structure, $0 foreign transaction fee, and straightforward redemption structure, but the other cards we've mentioned offer plenty of appeal to cost-conscious travelers.

Terms and limitations apply.

Rebecca Lake is a journalist at CreditDonkey, a credit card comparison and financial education website. Write to Rebecca Lake at rebecca@creditdonkey.com. Our data-driven analysis has been recognized by major news outlets across the country and has helped travelers make savvy financial and lifestyle decisions. (read more)

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved or otherwise endorsed by any card issuer. This site may be compensated through the Advertiser's affiliate programs.

Disclaimer: The information for the Capital One® Venture® Rewards Credit Card and Discover it® Miles has been collected independently by CreditDonkey. The card details on this page have not been reviewed or provided by the card issuer.

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