If you bought something while traveling in a foreign country, you might get charged what’s known as a foreign transaction fee. On top of that cost, you could also pay an annual fee on your credit card, which is essentially a charge just for the privilege of using the card.
Depending on the credit card issuer and the card, there are specific rules around these fees and how much they run. Plus, there are some credit cards with no foreign transaction fees and no annual fees at all.
Opting for a no annual fee and no foreign transaction fee credit card may seem like the obvious choice when selecting a card — and often it is. However, there are some scenarios when avoiding fees won’t be a cardholder’s top priority.
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What Are Foreign Transaction Fees and When Are They Applied?
As mentioned, a foreign transaction fee is a charge that you might pay when you make a purchase on your credit card while in a foreign country. For instance, you might get charged a foreign transaction fee when buying a ticket to visit a museum or dining at a restaurant abroad. These fees might also get tacked on when you take out money from an ATM in another country.
You don’t necessarily have to be in a foreign country to get charged a foreign transaction fee though. Sometimes, a foreign transaction fee might kick in if you’re buying something from a company that’s based in a foreign country and that processes the transaction in its local currency. For instance, let’s say you buy a pair of shoes from a retailer based in France. If the purchase is processed in Euros, you might be charged a foreign transaction fee.
A foreign transaction fee is typically based on a percentage of the transaction amount. For instance, if your card charged a 2% foreign transaction and you bought an item that cost $100, the foreign transaction fee would be $2.
Foreign transaction fees are a common credit card fee that will show up on your credit card statement, and they can make your travels more expensive. Let’s say you spend $4,000 on a trip overseas, and your credit card charges a 2% foreign transaction fee. In that case, you’d pay $80 extra to cover the cost of foreign transaction fees.
How Much Are Foreign Transaction Fees?
The amount of foreign transaction fees varies depending on the credit card issuer. That being said, most foreign transaction fees range anywhere from 1% to 3% of the transaction amount. Many cards don’t have a foreign transaction fee.
One thing to note: Foreign transaction fees are different from currency conversion fees. In some cases, you might get hit with a double whammy and be charged both. You could also face a credit card convenience fee, depending on where you use your card.
Foreign Transaction Fees by Credit Card Issuers
Let’s take a look at foreign transaction fees charged by the major credit card issuers. On average, here’s how much they can run, depending on which card you’re using and the issuing bank or credit union:
| Credit Card Issuer | Average Foreign Transaction Fee |
|---|---|
| Visa | 0% or 3% |
| Mastercard | 0% or 3% |
| Discover | 0% |
| American Express | 0% to 2.7% |
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What Are Annual Credit Card Fees and When Are They Applied?
Some cards come with an annual credit card fee. This fee is a yearly charge collected by a credit card issuer in order to use the card. Often, paying an annual credit card fee allows cardholders to tap into special perks and benefits, such as higher credit card points earnings on purchases, extended warranties and price protection, and travel or cash back perks.
The annual credit card fee will turn up on your credit card statement once a year as a single, lump sum charge. Usually you’re charged during the same billing cycle or month in which you initially signed up for the card. Once you pay the annual fee, the next time you’ll get charged is in 12 billing cycles.
You’ll cover a card’s annual fee just like you would any other purchase you put on your card. The fee will show up on your card and get folded into your statement.
How Much Are Annual Fees, Typically?
The amount of an annual fee depends largely on the card, but in general, annual fees can run anywhere from $95 per year to upwards of $500. There are a number of credit cards available that don’t charge an annual fee. And some that do also offer the opportunity to get the fee waived.
Do Cards With No Annual Fees Tend to Also Have No Foreign Transaction Fees?
Whether cards that skip out on charging annual fees will also have no foreign transaction fees really depends. There’s no hard-and-fast rule. In some instances, a card might have an annual fee but no foreign transaction fee. On the flip side, a credit card might have a foreign transaction fee but no annual fee. Or, a card could charge both fees or neither fee.
Before opening an account, it’s important to read the fine print and comb through the terms and fees of a given credit card. This will outline the fees a card might charge as well as the rate of credit card purchase interest charges. That way, you’ll know what you’re getting into with any given card.
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No Annual Fee and No Foreign Transaction Fee Credit Cards: Who They’re Great For
Let’s take a look at when a one-two punch of a credit card with no foreign transaction fees and no annual fee might best benefit you.
Online Shoppers
If you do a lot of your shopping online, particularly through brands that aren’t U.S.-based, you might find a no annual fee and no foreign transaction fee credit card beneficial. That way, if you happen to buy something from a merchant based in a foreign country and credit card processing is done in their local currency, you can save on foreign transaction fees.
Plus, if you have a strong credit score and can snag a card that offers a better-than-average rate of cash-back rewards or points, you might not need to splurge on a card with an annual fee to gain access to added perks.
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International Travelers
Foreign transaction fees can rack up quickly if you’re putting purchases on your card while traveling in other countries. For instance, if you spend $5,000 on your credit card while on a trip overseas, and your card charges 3% for foreign transaction fees, that could cost you an additional $150.
To avoid this expenditure, you might be better off looking for a card that doesn’t have foreign transaction fees. You’ll further avoid cuts to your travel budget by skipping out on paying an annual fee.
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No Annual Fee and No Foreign Transaction Fee Credit Cards: Who They’re Bad For
If you fall within one of the following groups, you might not find that it’s worthwhile to focus on finding a credit card with no annual fee and foreign transaction fee.
People Who Want the Most Rewards and Perks
For those looking for the most competitive rewards rate, lucrative travel perks, or a sizable welcome bonus, then a credit card with an annual fee might be their best bet. By taking advantage of these benefits offered by the card, you could still come out ahead even with the annual fee, as the perks can effectively offset the cost of the fee.
Just make sure to do the math ahead of time and ensure you’ll take enough advantage of the available perks before agreeing to a hefty annual fee.
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Those With Poor or Limited Credit
If you have poor credit or a limited credit history, you might not be faced with the choice of credit card miles vs. cash back when choosing a card. Instead, your options may be pretty limited. For those in this situation, a credit card that charges an annual fee and/or foreign transaction fees may still be their best — or only — available option.
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Tips for Save on Credit Card Fees When Traveling Abroad
Hoping to avoid credit card fees while you’re out of the country? Here are some pointers to keep in mind:
• Ask about fees ahead of time. If you’re not sure which of your credit cards does or does not charge foreign transaction fees, it can pay to ask ahead of time. Then, you can opt to avoid using a card with a hefty rate for foreign transaction fees while you’re traveling. Even if you can’t avoid these fees entirely due to the credit cards you have, you’ll at least avoid a surprise when you get home from your trip and be able to spend more strategically.
• Consider getting a no foreign transaction fee credit card. If you have the time ahead of your trip, can weather a dip in your credit, and are in the market for a new card, then getting a credit card with no foreign transaction fees — like the SoFi Credit Card — can make sense. This is especially true if you have a number of trips abroad planned for the future.
• Exchange cash before leaving the country. Another way to dodge fees while traveling is to exchange U.S. dollars for the local currency in the country you’re visiting before you leave. This will allow you to avoid potentially costly trips to the ATM and added fees when swiping your credit card. Just make sure to take safety into consideration before taking out a huge amount of cash.
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The Takeaway
A no annual fee no foreign transaction fee credit card can save you money — especially if it comes with its own set of perks that you don’t have to pay extra for. Plus, you don’t have to keep as close an eye on your spending abroad so you can better kick back and enjoy the sights.
If you’re shopping around for a credit card, the SoFi credit card is an option with no foreign transaction fees. Plus, you can earn competitive cash-back rewards.
FAQ
What does it mean when a credit card has no foreign transaction fees?
A credit card with no foreign transaction fee means that you won’t get dinged with a fee should you make a purchase in a foreign country. Depending on how much you end up spending while traveling, it could save you a significant chunk of change.
Why are no annual fees important?
A credit card with no annual fee means money you don’t have to spend. Plus, you won’t have to work as hard for the annual fee to pay off. In other words, you won’t have to strategize to make the most of any special perks, nor will you need to worry about spending a certain amount to offset the cost.
Is 3% foreign transaction fee a lot?
A 3% foreign transaction fee is on the high end of average. The rate of foreign transaction fees can vary, but they typically run anywhere from 1% to 3%, with some cards not charging any foreign transaction fees.
Photo credit: iStock/RgStudio
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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