When traveling you can spend a lot of time and planning so that you enjoy the perfect vacation. However, if you are unprepared, then you can be in for a big shock when you check your bank statement.
This is because if you have not already exchanged your money into a foreign currency in cash, your bank can charge you extortionate fees and offer you terrible exchange rates.
Here we will guide you through everything, from the basics about exactly what foreign transaction fees are, to how and when they are charged as well as teaching you how to avoid them. We will tell you how to get the best rteas and how to make the most of your money.
By reading all of this information provided below, you can be sure that you will be in a better financial position, allowing you to save money and enjoy your travels more!
What Is a Foreign Transaction Fee?
A foreign transaction fee is an amount of money charged to you by your bank for converting your money into the local currency.
So, for example, if you live in the US, but are on holiday in Spain, where the local currency is in euros, and you use your American banking card, your bank will charge you for buying something in euros when your money is in US dollars.
A foreign transaction fee is a banking fee for your bank acting as a middle man or currency exchange.
Most banks and card providers will charge foreign transaction fees, but there are a select few which do not. If you are unsure you can contact your bank to ask or you can check the terms and conditions of your banking contract. Often, they can also be found in the “fees” section, along with any information about annual fees or charges—check out more from View from the Wing.
Transaction fees will be shown on any banking statement and you will be given all the information relevant to your purchase. Often the bank will also provide you with information about the exchange rate used and the original price in the local currency.
The fee often compensates the bank for the fact that the charge was processed through a foreign bank operator and then through them. There are two parts to a foreign transaction fee:
1) Network fee (also known as currency conversion fee). This is the fee from the debit or credit card provider. This is often in the region of 1-3%. This fee will then apply to all transactions that you may on that card.
2) Your bank fee. Depending on the card and bank that you use, you can also be charged an extra fee, normally this is around 2% and is added on top of the network fee.
However, normally these two charges are merged into one single fee that you will see appear on your bank statement.
How to Calculate a Foreign Transaction Fee
Banks are very aware that currencies fluctuate in their exchanges and so you will not always get the same conversion on different days. You will be able to find the exact conversion used on your bank statement. However, the additional fees are easily calculated.
For example, if you are on holiday in Europe but your bank is in America, you can typically expect to be charged 1% by your card provider and another 2% by your bank.
So, if you go shopping and buy an item for 82 euros (roughly $100), your bank will charge you 2% of this.
In addition to this, your card will charge you approximately 1%. So, the calculation becomes the following:
$100 x 1% + 2% = 103
There is an extra charge of 3% – here equivalent to $3 US dollars.
Although this may not seem like a large fee to avoid all the hassle of exchanging your money yourself through shops or kiosks, this amount for every transaction abroad can quickly add up!
There are many different ways to avoid these fees, which can save you a lot of money in the long run for not much extra effort!
How Do I Avoid Foreign Transaction Fees
There are several ways to avoid foreign transaction fees. Below we will detail the best ways to avoid the extra charges and explain the pros and cons to each.
You can pick and choose which methods work best for you and can use this as a simple and easy guide to saving yourself money.
Avoid Using ATMs
When you use an ATM abroad, you are often causing extra fees to your bank account.
The fee can either be a flat-rate fixed fee, in which case it would be advisable to withdraw as large an amount of money that you need to avoid paying this fee several times over or the fee can be proportional, in which case the number of transactions does not matter from the point of view of the foreign bank’s fee.
Avoid Withdrawing Money in Airports
The worst place to withdraw money when traveling is inside of an airport.
Here, the companies know that you are often in a rush and will willingly pay higher fees for convenience. Often, if you travel just a little outside of an airport, you will find significantly lower rates.
Use Local Banks
Quite often large banks will have a partnership with foreign banks and this can come in handy when traveling. Get in touch with your bank provider and ask them about their foreign connections. This way they can inform you of any connections that they have and they can provide you with any information about foreign transaction fees.
Exchange shops in your hometown are a great way to save yourself from the hassle of foreign transaction fees. Although, this can be dangerous because it means that you will be traveling with a large amount of cash (obviously depending on your budget and duration of your stay abroad).
Typically, if the amount is above a certain threshold, you will have to declare it when passing through customs in the airport and provide reasoning for the amount and its origin.
So, although you can save money on transaction fees this can be more of a hassle and worry than it is worth. It may be a good idea just to exchange a small amount of money into the local currency before your trip.
Choose Bank Cards with No Foreign Transaction Fees
There are several companies and card providers that offer “travel cards” specifically offered for those wishing to travel, allowing them to avoid transaction fees on their home end. Of course, you may still be charged a transaction fee by the foreign bank from which you withdraw money, but you will not be charged any fees by the card provider.
For example, premium travel rewards cards are designed and offered exactly for this purpose, making them a great option for business travelers or those who simply travel often.
Otherwise, a simple way to save some money is to compare banks and card providers based on their foreign transaction fees. This way you can choose a card that is right for you and be in the knowledge that they will charge you a relatively small amount compared to what you possibly could be paying!
Ultimately, the best way to avoid foreign transaction fees is to choose a provider that does not charge for using your card abroad. However, if none of those options are available to you, or simply do not suit your needs, the other options mentioned above are a good alternative.
Summary: High foreign transaction fees are avoidable if you plan, avoid the airports, and understand how the fees are calculated.