Best No Foreign Transaction Fee Cards

So you finally planned a trip to Europe, and saved enough money to stay in a great hotel, but want to make sure that when you use your credit card you don’t get raked over the coals with high transaction fees. Many credit cards offer great perks for domestic use but fall short when it comes to charging foreign transaction fees. When looking at a credit card that you want to use when you travel abroad, search for ones that not only provide you with no foreign transaction fees but also have other attractive perks. A no transaction fee credit card does not charge you when you make a purchase either out of the country or online with a company that is outside of the United States.

We are all aware that financial institutions are in business to generate revenue and most of us are okay with paying fees as long as we are getting a service in return. Unfortunately, the charges issued by credit card issuers for foreign transaction fees can be onerous and provide little in return. Most financial services companies charge a whopping 3% foreign transaction fee and customers do not get anything in return for this charge.

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Why Are There Foreign Transaction Fees?

You would assume if a credit card issuer was going to charge you a fee as high as 3% for a transaction that takes place out of the country, that there would be a good reason for the charge. For example, if the charge was in a different currency, you could understand that they might be taking the risk that the currency moves against them and they are on the hook for a transaction that is underwater. Well, this is not the case. You can get hit with a foreign transaction fee even if you do a foreign transaction in US dollars. The fee is set to as a charge for processing a transaction outside of the United States. You can even get hit with a foreign transaction fee if you purchase an item online from a vendor that is outside of the country.

What is infuriating is that there are no additional costs associated with a transaction that is processed in Montreal compared to Montana. There are no specific differences in the transaction, but this is used to generate profits for a bank or credit union.

The question is what do you get for your 3% upfront fee, and the answer is nothing. There are reports that most banks do not have a data center in the country of residence, and there are no additional fees that this 3% covers. The pressure to drop these fees has resonated within the industry and many banks have dropped these fees on specific cards. It takes some due diligence but you can find credit cards that offer many perks and do not charge a foreign transaction fee.

Types of No Foreign Transaction Fee Credit Cards

Many of the no foreign transaction fee credit cards are travel based cards that provide travelers with a plethora of great benefits. Some of these cards have annual fees that are waved during the first year, and some have very steep annual fees. Annual fees can range from $75 per year to as high as $550 per year.

Perks include:

  • Travel rewards that can be redeemed for several different types of goods and services.
  • Bonus rewards when you spend above a certain level.
  • Double and triple the standard reward when you spend on specific travel related services, and in some cases gasoline and restaurant spending.
  • A percent of your spending redeemed in cash back, some as high as 10%. For example, if you spend $1,000 you will receive $100 cash back.
  • Exclusive access to clubs, such as airport lounges across the globe. Many have partnerships with airlines where you can receive miles on partner programs.
  • Some of the cards provide access to different hotel partner programs and give you exclusive access to additional hotel luxuries.

While some of these cards wave their fees during the first year, all seem to make up their transaction fee with relatively steep interest rates and an annual fee that at the minimum begins after the first year.

How can a No Foreign Transaction Fee Credit Card Help You?

The most obvious reason these credit cards are beneficial is they allow you to avoid substantial fees if you are traveling abroad. When you arrive, everything from your hotel bill, to a snack at a café will be charged a foreign transaction fee, if you do not have it waved.

Other Foreign Transaction Fees

Standard foreign transaction fees are for purchases of goods and services that take place outside of the United States, but you need to be cognizant of other fees that occur that can run up your bill.

While you might have a credit card that has no foreign transaction fees, this will not cover you if you take a cash advance from your credit account from an ATM. Here you might incur a standard ATM fee, as well as a fee for taking out cash from an ATM that is outside of the country. Prior to pulling the trigger on this transaction, call your Credit Card Company and ask if there are additional fees associated with taking out cash from a foreign ATM.

One of the fees you might experience is a currency conversion fee. This fee usually ranges from 1-3% of the amount of cash you withdraw.  You can also be subject to an international ATM fee. Banks or credit unions typically charge a flat fee for using an ATM network in another country. In addition, you might be subject to a fee that is a percentage of the amount you withdraw. This fee could be different from the fee you experience when you take money out from an ATM that is outside your domestic network. While most of us are used to paying $2-3 for cash that we take out from an ATM out of our network, an international ATM fee could be much larger. When you use an ATM in another country, the owner of that ATM might have its own fee in addition to what your bank or credit union charges.

Free International Transaction Fees

But some large banks are issuers of credit cards that do not charge an international transaction fee. They have branches and ATMs in foreign countries, where travelers may be eligible for free services. Others have partnerships with foreign banks that have similar benefits.

Currency Conversion Fees

While you might escape foreign transaction fees, if you are purchasing goods or services abroad, you are likely subject to a currency conversion fee. This fee is a result of dynamic currency conversion which is a charge by the merchant to convert their currency into dollars. For example, if you are visiting London and purchase a coat using your credit card, the merchant will charge you a fee to convert your dollars into pounds. This is similar to the charge that you would experience if you exchange your cash for pounds at the airport. Many times the merchant will give you the option of seeing your bill in foreign currency or dollars.

Most of the time, the conversion will take place by your credit card payment network. They will do the conversion for you and it will show up on your network. Most of the time the rates that you will receive from your credit card provider will be better than the rates experienced with dynamic currency conversion.

Exchange Rates

In addition to a fee for converting your currency, you will have to convert your dollars to another currency when you purchase in a foreign currency. Foreign currency rates, move daily and change throughout the day, based on supply and demand. The currency market is a global capital market that often fluctuates, and if you are visiting a foreign currency, you want to be aware of the current rate.

You want to make sure that the rate that you receive is the rate that was available on that day. While the currency rate might move in your favor in a week or two later, you don’t want to be surprised with a change in your purchase price if it moves against you.

For example, if you purchase a piece of jewelry for $10,000 in London when the pound is 1.32, the cost in dollars is 13,200 pounds. If the pound during the next 2-weeks increases to 1.37, and your credit card company does not lock in the rate for you, you could find yourself paying $13,700 for your jewelry. Call your credit card company before you make your purchase and find out when they lock in your rate.  If they tell you it could be 3-4 days to a week, you might consider using a different source to pay for your purchase.

One way to avoid currency and foreign transaction fees completely is to carry cash.  You can convert your cash when you enter a country and change it back when you leave.  While this will be less expensive for day to day items, like meals and local transportation, it is not the safest way to travel. If you want to change your dollars into a foreign currency, the best way to do this is at home before you leave on your trip. Many of the major banks have foreign exchange department that will provide you with rates that are very competitive. If you wait and change your currency once you arrive in another currency, the airport is the best place to exchange your dollars, but the rates will be less competitive.

 

Getting a No Fee Foreign Credit Card with Bad Credit

While some credit cards will provide you with perks with bad credit, most of the issuers who provide these perks want good, to excellent credit candidates. This means that your credit score is above 690. If you are planning to travel overseas, and want to use a no-fee credit card, you should consider a few options. If you are traveling with someone that has better credit, use their credit card to make a purchase and then pay them back with cash. Instead of using credit, pay in cash, which will avoid the foreign fees completely.


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Summary

If you are considering going abroad or you are purchasing goods or services online from a foreign merchant, you should look into credit cards that provide customers with a zero-fee foreign transaction credit card.  Most credit cards charge you a fee that can be up to 3% of your purchase if you do not have a credit card that addresses this issue. Many of these credit cards provide customers with robust reward programs, as well as numerous perks when traveling. The caveat is that the majority of these cards have an annual fee.

Just because you have a credit card that does not charge you a fee for foreign transactions, does not mean that when you use the card you will not incur a fee.  Many credit cards will also charge you a fee for changing your dollars into a foreign currency. You also need to be aware of when your credit card will exchange the foreign currency purchase into dollars. If you take out a cash advance, you could also change an international ATM chare. Most of the time, to receive a no foreign transaction credit card, you will need to have good to excellent credit.

If you are interested in finding credit cards that offer no-fee foreign transactions, look through the different cards that offer this feature on FX Empire.