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Understanding and Avoiding Foreign Transaction Fees on Debit Cards

Foreign transaction fees are charges imposed by credit card issuers, banks, and other financial institutions when you use an electronic payment card to make purchases in a foreign country or in another currency. These fees can apply to both debit and credit cards.

While foreign transaction fees on debit cards are becoming less common, they can still impact your travel budget if your bank charges them. It’s essential to check with your bank to see if these fees apply, especially if you plan on traveling abroad soon.

What Are Foreign Transaction Fees on Debit Cards?

Foreign transaction fees may be incurred when you use your debit card for point-of-sale purchases, ATM withdrawals outside the United States, or when making purchases in a foreign currency. These fees help banks and credit card companies cover the costs of converting currencies and processing international transactions. The fee may include charges from your card network, such as Visa and Mastercard, and your bank.

Many banks do not charge foreign transaction fees on debit card transactions, so it may be worth switching banks if your current bank imposes such fees. Otherwise, the amount you pay for goods and services may be higher than their price tags. These fees can add up quickly when you’re abroad or shopping online with foreign merchants, including when booking your hotel, transportation, tours, and activities.

How Much Are Foreign Transaction Fees?

Foreign transaction fees typically range from 1% to 3% of the transaction price. This means you could pay up to an additional 3% on hotels, food, entertainment, and transportation while visiting another country. For example, if you spend $5,000 on a vacation abroad using your debit card, you could owe an extra $150 in foreign exchange fees.

In addition to foreign transaction fees, you may incur currency conversion fees from your bank, payment networks, ATM operators, or merchants to convert transactions into U.S. dollars. This process is called dynamic currency conversion (DCC). Currency conversion fees are often 1% of the purchase price, and both fees may be combined and listed on your statement as a foreign transaction fee.

How to Avoid Foreign Transaction Fees on Debit Cards

Before traveling abroad or making online transactions with foreign merchants, ensure your debit card does not charge foreign transaction fees. If it does, consider the following strategies to avoid these fees:

Apply for a Credit Card That Doesn’t Charge Foreign Transaction Fees

Many credit cards, including most travel cards, do not charge foreign transaction fees. Travel credit cards often provide valuable benefits and perks, such as bonus points, access to airport lounges, and discounts on TSA PreCheck. Using a card comparison tool can help you discover cards that you may qualify for and easily compare their features.

Exchange Currency Before You Leave Home

Another way to avoid transaction fees is to pay for your purchases in cash when traveling internationally. However, exchanging your U.S. dollars into the local currency while abroad can be costly. Your best bet may be to visit your bank in the U.S. before you leave and exchange your U.S. dollars for the local currency of your travel destination. Many banks and financial institutions have low foreign exchange fees or do not charge a fee, which could save you considerably.

Keep in mind that carrying large amounts of cash can be risky, so you may only want to have a small amount of spending money when you arrive. This way, you can avoid potentially costly airport kiosks or international ATMs to get cash upon arrival.

Switch to a Checking Account Without Foreign Transaction Fees

If your bank charges foreign transaction fees on debit cards, consider opening a checking account with a bank that does not charge the fee, especially if you travel often. A fee-free debit card could come in handy abroad, especially if a merchant does not accept credit cards or charges extra to use them.

For example, the Schwab Bank High Yield Investor Checking account offers unlimited ATM fee reimbursements domestically and internationally. The account does not charge foreign transaction fees or monthly fees. It also offers a 0.45% annual percentage yield (APY), which is unique for a no-fee checking account.

If you do not want to switch banks or add another bank account, ask your bank if they have branch locations, partner banks, or network ATMs where you are traveling. If so, you may be able to access cash while abroad without incurring a fee.

Find the Right Card With No Transaction Fees

Thankfully, foreign transaction fees are less common with debit cards than they used to be. Similarly, most travel credit cards do not charge these types of fees. With that in mind, it might be helpful to check your debit and credit cards’ terms and conditions to determine if you will incur foreign transaction fees while you are away. This way, you can plan for how you will pay for transactions or withdraw cash while abroad.

You may avoid foreign transaction fees and enjoy other travel perks and protections by opening a new credit card account. Before applying, consider the card’s minimum credit score requirements, annual fees, rewards, and other factors. A card comparison tool can help you find the best credit cards that meet your objectives.

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