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, if you spend $1,000 on foreign currency items throughout the year, it adds up to $15 to $30 in excess credit card fees. International travellers 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.
Are Most Credit Card Users Aware Of Foreign Transaction Fees?
We mentioned above how foreign transaction fees can apply even when you purchase 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’s 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 transactions fees can apply when making a purchase 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.
To avoid falling victim, we recommend you switch to a credit card with zero foreign transaction fees. Fitting the bill, the Capital One Venture Rewards Credit Card is great place to start.
Is It Fair For Credit Card Issuers To Charge Foreign Transaction Fees?
Overwhelmingly, 81% of respondents said it was unfair that credit card issuers were charging 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 travelling to an allied nation. Within the study, 70% of respondents felt credit card issuers should lower their foreign transaction fees when you travel 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.
What Worries Consumers The Most When Travelling Abroad?
While 14% of respondents cited foreign transaction fees as their biggest worry when travelling abroad, there are other issues at play that keep international travellers up at night.
Topping the list is losing a credit card or having a credit card stolen.
52% of respondents cited a lost or stolen credit card as their biggest vacation worry. When travelling to a foreign country – especially those where you don’t speak the language – 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.
To combat this issue, 51% of respondents said they rely on their smartphone to complete foreign transactions. Considering it’s more difficult to lose your phone than a piece of plastic, it seems like a logical tactic when travelling abroad.
Next on the list is exchange rate worries.
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. travellers. 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 rates worries are high on the list for international travellers, U.S. consumers should realize that the U.S. dollar is actually the least of your concerns.
Last is credit card overspending.
At 10%, respondents listed credit card overspending as another major worry when travelling 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, travellers 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.