Although using a credit card abroad is often as simple and straightforward as using one in the UK, there is a price for this convenience.
Foreign transaction fees (sometimes referred to as ‘non-sterling transaction fees’) are a part of a credit card’s overall fee structure that is often overlooked when people are comparing products. However, they can add a considerable cost if a credit card is regularly used abroad.
Issuers charge foreign transaction fees to convert one currency to another when purchases are made in a foreign currency (as one might be charged in a Bureau de Change). Charges vary by card, as do the ways they are applied – some cards impose charges as a percentage of the overall transaction, whilst others charge a fixed fee per transaction.
Foreign transaction fees are charged on credit card purchases made abroad in a foreign currency. They are also charged on credit card purchases made online from the UK in a foreign currency.
Note: Foreign transactions can also apply in the UK where the territory does not use GBP, for instance Guernsey and Jersey (which have their own currencies – albeit pegged to Pounds Sterling)
Although many credit cards charge foreign transaction fees of around 3%, some cards charge considerably less (and some charge no foreign transaction fees whatsoever) so people who spend a significant amount abroad should shop around for the best deal. However, although fees of 3% may seem prohibitive, they are still lower than the conversion fees charged by PayPal and some other online payment platforms.