How to Avoid Bank Fees While Traveling

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Traveling is expensive enough without the added cost of international bank fees. If you are hitting the road, there are several charges that you should keep an eye out for if you want to keep your hard-earned money in your bank account. Some of the most popular international fees include:

  • Foreign transaction fees
  • Currency conversion fees
  • Dynamic currency conversion (DCC) fees
  • International ATM fees
  • Foreign bank ATM fees

Some of these charges may be levied by your own bank, while others may be collected by the foreign ATM or merchant’s bank. When it comes to your bank account or credit card statement, travel-related bank fees might be divided into individual charges, but they could also be wrapped together in a neat bow under the guise of a foreign transaction fee.

No matter how your financial institution handles these charges, you should do what you can to avoid bank fees from traveling.

Foreign Transaction Fee

Debit and credit card companies charge foreign transaction fees when you use a U.S.-issued card for a purchase outside of the U.S. You could incur foreign transaction fees if you:

  1. Conduct a transaction with your debit card or credit card when you are physically in another country
  2. Conduct an online transaction with a merchant outside of the U.S. who processes the purchase in local currency

The charges are levied by the financial institution that issues your credit or debit card — like Bank of America, Capital One, or Chase.

Foreign transaction fees often run 3–5% of the total transaction amount. For instance, if your credit card issuer charges a 5% foreign transaction fee for purchases made outside of the U.S. and you buy something for $500, you could expect a $25 fee.

$500 x 5% = $25

Occasionally the foreign transaction fees charged by your bank include two parts: the charge by your issuer plus a separate charge by the credit card processor (e.g. Visa, Mastercard, Discover, American Express) to convert your purchase into the local currency of the foreign merchant. The latter is called a currency conversion fee, and it is usually 1% of the transaction amount.

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Currency Conversion Fee

A currency conversion fee is a charge levied by a debit card or credit card payment network (e.g. Visa, Mastercard, Discover, American Express) or ATM operator for converting your purchase into the local currency. For instance, if you are traveling through Europe and buy something from a local merchant using your U.S.-issued credit card, Visa will charge you a fee to convert your money from U.S. dollars to euros to settle the transaction.

Currency conversion fees typically run 1% of the transaction cost. If you purchase something for $100, you can expect to pay a $1 currency conversion fee.

$100 x 1% = $1

These charges are often wrapped into foreign transaction fees levied by your issuing bank or other financial institution; the two will likely appear on your bank or credit card statement as a single charge.

Dynamic Currency Conversion Fee

A dynamic currency conversion fee (DCC) is a form of currency conversion fee. With the standard currency conversion fee, the U.S. payment network (e.g. Visa, Mastercard, Discover, American Express) sets the conversion rate before settling the transaction with the foreign merchant. However, with dynamic currency conversion, the local merchant or foreign ATM sets the conversion rate.

You’ve likely seen DCC in action if you’ve been at a store or ATM in a foreign country and the merchant or machine has asked whether you’d like to pay in local currency or in U.S. dollars. By electing to pay in U.S. dollars, you allow the local merchant to impose the conversion rate they’ve set, which is often much higher than the mid-market — or official — exchange rate.

In this case, the foreign merchant is able to pay out the necessary cost to the payment network and pocket the difference. This is why it is always best to pay in local currency when conducting a transaction in a foreign country. It can save you a significant amount of money in currency conversion fees.

A woman conducts a transaction at an ATM.

International ATM Fee

When you conduct a transaction at an out-of-network ATM in a foreign country, your U.S.-based financial institution may charge you an international ATM fee. These fees most often occur when you make cash withdrawals.

The cost of international ATM fees varies between financial institutions. Some may charge a flat fee from $1–$5; others may charge a fee that is a certain percentage of the withdrawn amount.

Foreign Bank ATM Fee

In addition to the international ATM fees charged by your own bank, you may also be charged foreign bank ATM fees by the foreign financial institution or ATM owner for conducting a transaction at their machine.

ATM fees levied by foreign banks tend to range in cost from $1–$7.

How to Avoid Foreign Transaction Fees and Other Travel Charges

Traveling can already be expensive; bank fees from traveling only add fuel to the fire. However, there are several things that you can do to avoid the additional charges.

Limit ATM usage abroad

Each time that you visit a foreign ATM, you are subject to foreign transaction fees as well as foreign ATM fees. If possible, avoid using an ATM altogether. If you do need to use one, try withdrawing as much cash as you’ll need for the entire trip to avoid excessive charges.

Before you leave for your trip, you should also see if there will be a partner or in-network ATM where you’ll be traveling so you can minimize ATM withdrawal fees. You can typically look on your bank’s website or mobile app for ATM locations.

Exchange currency before leaving

Planning ahead can quite literally pay off. Try to calculate how much money you will need for your trip ahead of time so that you can swap cash at your bank prior to your departure. Although you will still be subject to fluctuating exchange rates, you won’t have to pay extra money for a foreign country to convert your cash.

If possible, you should also try to exchange currency away from hotels, airports, hotels, or other exchange centers; the rates here tend to be higher than average.

Pay in local currency

When you make a purchase or complete a transaction in a foreign country, the merchant will typically ask if you want to pay in U.S. dollars (USD) or in that country’s currency. It’s best to pay in local currency. DCC enables merchants and shop owners to set an approximate exchange rate to convert your money to USD, which is typically an inflated rate. Whatever money is not paid out in the actual conversion of currencies, the merchant gets to keep.

By paying in local currency, you avoid dynamic currency conversion and end up paying closer to the actual exchange rate between the U.S. and the country that you are visiting.

Use a fee-free credit card or bank account

Banks, credit unions, and other financial institutions offer cards and bank accounts with perks when it comes to fees — including unlimited out-of-network ATM usage, overdraft protection, and foreign transaction fee waivers. If you travel a lot, consider opening one of these accounts or cards to save more money long term.

Related article: Excess Activity & Inactivity Fees: The Cost of Too Much (or Too Little) Banking Activity

How to Financially Prepare to Travel Abroad

Aside from looking out for travel-related fees, there are several other things that you can do to prepare your financial accounts for international travel.

  • Notify your financial institutions: It’s important to alert your bank or credit union about upcoming international travel plans. A brief call to customer service could save you from a debit card or credit card freeze while abroad.
  • Set up online or mobile banking: This will ensure that you can securely check your balances, transfer, and deposit money when you need to while on the road.
  • Be prepared with multiple forms of payment: Even if you only plan to use one travel rewards credit card for your entire trip, don’t make a rookie mistake. Things happen — come prepared with several methods of payment, such as credit and debit cards, as well as cash.
  • Check the exchange rates of the country you’re traveling to: Familiarize yourself with the local currency of where you’re traveling, as well as the exchange rate before heading there. It could save you from dropping a pretty penny on foreign currency at the airport exchange kiosk.
  • Sign up for a fee-free ATM and credit card: Get one step ahead by applying for a fee-free or travel rewards credit card before you leave. You’ll thank yourself when you don’t have to negotiate foreign transaction fees once you return — and you could even rack up some nice rewards while you’re out-of-office.
Last Updated on January 01, 2024
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Disclaimer: The information provided in this website is for educational purposes only and should not be considered as financial advice. Consult with a financial professional for personalized guidance regarding your specific situation.
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