Anyone who travels often knows how quickly the costs can add up.
If you’re travelling in a foreign country and pay with your credit card – you will likely have to pay foreign exchange conversion fees. They’re usually hidden within the transaction and in some cases it can be tricky to find out the true cost.
It’s become standard for credit card companies to charge an extra 2.5% when paying for an item purchased outside your home country. Credit card companies can also charge fees for items bought in your country – but in a foreign currency.
How it Works
Within a standard credit card agreement there is a clause stating you need to pay the exchange rate when an item is purchased and a foreign exchange conversion fee (typically 2.5%).
For example: you are travelling in Europe and you bought a sweater for 100 euros. Your home country is Canada. If the bank used an exchange rate of 1.45, you’d pay $145 Canadian. Then there is the foreign exchange conversion fee – at 2.5%, you’d pay a total of $148.63.
Fees on Every Transaction
The problem with foreign currency transactions is that the exchange rate is constantly changing, and foreign exchange conversion fees are taken on every transaction.
If you ever decide to return an item bought with a foreign currency, you may actually end up losing money.
For example: you buy a TV while travelling to the US for a total of $525 USD and the exchange rate is 1.1255. This means your cost is $590.89 CDN.
You return the TV one week later and the exchange rate is then 1.1015. Your original cost ($525 USD) is credited back using the current exchange rate, giving you $578.29 CDN.
This means you’ve lost $12.60 due to differences in exchange rates and foreign exchange conversion fees – and you’ve returned your original purchase.
Tips to Avoid Fees
Here are a few quick tips on how to avoid paying excessive foreign exchange conversion fees:
- Pay for US charges using US funds. If you travel to the US often, consider getting a US Dollar credit card and/or opening a US Dollar bank account. This would allow you to pay US expenses using US Dollars and you could buy US Dollars when exchange rates are favorable.
- Speak to your bank, as they may be able to help. If you are charged excessive fees but didn’t realize beforehand that you would be charged, explain this to your bank. In some cases they have credited back customers some (or all) of the fees paid.
- Consider getting a credit card that doesn’t charge foreign currency fees. Most of them do but there are a couple good ones that don’t charge for foreign currency conversion: the Amazon Rewards Card and Marriott Rewards Premier Visa.
- Use cash whenever possible while travelling. That way you have all cash converted at one time rather than constantly paying an extra 2.5% for each transaction.
- Avoid a scam commonly known as ‘dynamic currency conversion’ – this happens when a merchant quotes the final price in US Dollars rather than the local currency, and then uses an exchange rate higher than the credit card. You can easily avoid this by checking the current conversion rate before you make the purchase.
The easiest option for me would be to simply buy US Dollars when exchange rates are favorable and hold them until I book a trip. Luckily, when I do travel it’s usually for work so I get reimbursed the actual amounts paid and don’t have to worry about the exchange rates.
Conclusion: foreign exchange conversion fees can quickly increase your travel costs. If you travel to the US often, consider a US Dollar credit card, a US Dollar bank account or applying for a credit card that doesn’t charge foreign currency fees: the Amazon Rewards Card and Marriott Rewards Premier Visa.
You can also consider buying US Dollars when exchange rates are favorable and keeping them in a high interest savings account.