Whether you’re surfing the beach of your favorite tropical locale or you’re surfing the web from the comfort of your own home, credit card issuers – like Bank of America, Chase Bank, or Citi Bank – can charge you foreign transaction fees even for items purchased domestically.
See, whenever you buy an item that requires a currency conversion, your credit card issuer charges anywhere from 1.5% to 3% to complete the transaction. This may not sound like much, but with nearly 68% of credit cards in the marketplace charging foreign transaction fees, the costs can add up quickly. For example, spending $1,000 on foreign currency adds up to $15 to $30 in excess credit card fees. International travelers know this problem all too well. When vacationing abroad – even with a package booked in advance – food, leisure, and transportation costs can quickly inflate your vacation budget. And when you add a 1.5% to 3% foreign transaction fee on top of that, it makes it even more difficult to stay on top of your finances.
We mentioned above how foreign transaction fees could apply even when purchasing an item from home. And with over 200 million Americans unaware these fees even apply, credit card issuers end up with significant profits from the tiny spread.
Citing WalletHub 2019 Foreign Transaction Fee Survey, 50% of American’s said they have no idea whether or not their credit card issuer charges foreign transactions fees. Moreover, 89% of respondents were unaware that foreign transaction fees could apply when purchasing domestically.
It works like this: say you come across an ideal pair of loafers or heels – whatever your preference – but the item is sold by a European vendor and priced in European dollars. If you make the purchase, your credit card issuer can deem the item a foreign transaction and charge you a 1.5% to 3% fee.
We recommend switching to a credit card with zero foreign transaction fees to avoid falling victim. Fitting the bill, the Capital One Venture Rewards Credit Card is a great place to start.
Overwhelmingly, 81% of respondents said it was unfair that credit card issuers charged foreign transaction fees. More importantly, 63% of respondents said they would never apply for a credit card knowing these fees were charged. To make matters worse, credit card issuers do not lower their foreign transaction fees, even if a consumer is traveling to an allied nation. Within the study, 70% of respondents felt credit card issuers should lower their foreign transaction fees to a country with strong diplomatic ties to the United States.
From a consumer standpoint, it’s hard to argue with the frustration. In all honesty, foreign transaction fees are just another tool for banks to increase their bottom line. Moreover, considering banks already earn a profit each time you convert one currency to another, adding foreign transaction fees on top of that only makes matters worse.
While 14% of respondents cited foreign transaction fees as their biggest worry when traveling abroad, other issues keep international travelers up at night.
52% of respondents cited a lost or stolen credit card as their biggest vacation worry. When traveling to a foreign country, it’s hard to distinguish a friendly local from a potential scammer. As well, when soaking up the sun and enjoying all of the sights your locale has to offer, it’s easy to lose your credit card and not even recognize it’s gone.
51% of respondents said they rely on their smartphones to complete foreign transactions to combat this issue. Considering it’s more difficult to lose your phone than a piece of plastic, it seems like a logical tactic when traveling abroad.
We mentioned above how banks earn a profit each time you convert a currency. See, when you make a purchase that qualifies for conversion, banks keep a ‘spread’ for themselves by giving you less than the spot exchange rate. But, considering the U.S. dollar is extremely strong right now and outperforming many other currencies, the conversion rate is actually helping U.S. travelers. See, as the U.S. dollar increases in value, it makes the cost of goods and services in foreign countries less expensive. So while exchange rate worries are high on the list for international travelers, U.S. consumers should realize that the U.S. dollar is actually the least of your concerns.
At 10%, respondents listed credit card overspending as another major worry when traveling abroad. Considering the financial implications of going over your budget – not to mention how easy it can be when on vacation – it’s understandable consumers are worried about too many impulse purchases.
Our recommendation is to plan your budget ahead of time. Rather than calculating the entire amount you can afford to spend over your trip, break the figure down by day so it’s easier to keep track. Moreover, avoid purchasing unique items that won’t be very useful once you return home. Many times, travelers will purchase cultural items or goods that are extremely eye-catching when on vacation, only to come home and realize it doesn’t quite fit their domestic decor.