Going Abroad: Foreign Transaction and Currency Conversion Fees

Avoid excessive travel costs and the baggage that comes with it

The suitcase has been meticulously packed. Your passport was finally renewed. Nice photo by the way. That’s everything, right? Well, not exactly. Before you travel abroad, there are a couple things you should know. First, it’s important to familiarize yourself with foreign transaction fees and dynamic currency conversion fees. Secondly, develop a plan to help elude them.

Why Should I Care About Foreign Transaction Fees?

Let’s say you visit Tokyo, Japan, a country renowned for, among many things, quality electronics. While in Tokyo, you decide to purchase a new digital camera to document your trip. But, if you’re paying with a credit card, you could be charged with what’s known as a foreign transaction fee, or FX fee. These fees, which can sometimes be as much as 3 percent of the purchase price, are tacked onto your bill whenever a transaction goes through a foreign bank or is made in a currency other than the U.S. dollar. It’s important to note that some travel cards don’t charge FX fees.

What’s so Important About Dynamic Currency Conversion Fees?

It doesn’t end there. You’re traveling internationally and that camera costs ¥8,000—how much is that in U.S. dollars? It can be difficult trying to calculate exchange rates at the point of sale. So, foreign merchants will sometimes offer to perform a dynamic currency conversion, or DCC. This service immediately converts the foreign price to your local currency, giving you a better idea of how much money you’re about to spend. Sounds nice, right? Well, there’s a catch. Merchants aren’t offering this as a public service—they’re charging a significant fee to do it, sometimes as much as 7 percent of the purchase price.

But I Can’t Be Charged for Both, Right?

Actually, you can. For example if you use a credit card that does charge FX fees, and you request a dynamic currency conversion, you could wind up paying an additional 10 percent (3% in FX fees and 7% for DCC) on top of the purchase price. 10 percent. That’s one expensive souvenir. Imagine the costs you’d incur if you did that on every transaction? For every $1,000 you spend, you would be charged an additional $100.

So, Can I Avoid These Fees?

Absolutely, don’t cancel your trip. There are credit cards for international travel that don’t charge foreign transaction fees. Check the fees section in the terms and conditions to see if your card is one of them. If not, pay with cash, and use a debit card that charges low rates for international ATM transactions. Carry only the amount of cash you need for each day and keep the rest in a hotel safe.

When it comes to DCC fees, you can take control over whether you’re charged. That’s because merchants are not allowed to perform a DCC without your permission, so when in doubt, kindly decline. If your bill is converted to U.S. dollars without your permission, ask the merchant to void the transaction. You can also download a currency conversion app—which easily calculates a variety of foreign currency rates so you can make quicker, more informed decisions.

Now, you’re ready. With a clear understanding of when you might be charged, and how you can avoid it, your next trip abroad should be full on experience and easier on your wallet.

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