The best ways to avoid foreign transaction fees on credit cards

To be fair, it’s not like anyone is trying to hide these fees. They’re clearly shown when you apply for the card and the info can be found on their websites. But many people are still caught off guard by them since they only see the final converted amount on their statements and until then don’t realize how much extra they’re paying.

The good thing is that there are a few credit cards that don’t charge foreign transaction fees at all. With these cards, you’ll only pay the mid-market rate that Visa and Mastercard charge when you make your purchases.

Scotiabank Passport Visa Infinite Card

One of the most popular travel credit cards without foreign transaction fees is the Scotiabank Passport Visa Infinite Card*. Besides not charging forex fees, people are attracted to this card because you get a free Priority Pass Membership, six annual airport lounge passes, and a comprehensive travel insurance package. Those additional benefits alone are worth more than $450 which more than makes up for the $139 annual fee.

Home Trust Preferred Visa

For people who don’t like paying annual fees, the Home Trust Preferred Visa* is another card that doesn’t have forex fees. You don’t earn travel rewards with this card, what you get is 1% cash back on all your purchases. Additional benefits include auto rental collision/loss damage insurance and purchase protection which is pretty good considering this is a no-fee card.

Beware of dynamic currency conversion

Even if you have a credit card without foreign transaction fees, you may end up paying them by mistake. In many foreign countries, you’ll now be prompted to choose to pay in either the local currency or in Canadian dollars. This seems great at first since you can see how much you’ll be paying in CAD, but it’s actually cheaper to choose the local currency.

When you choose to pay in the local currency, you’re paying the exchange rate set by Visa or Mastercard. However, when you choose Canadian dollars, it’s the merchant that sets the exchange rate so you end up paying a premium. It’s not like they’ll charge you 10% plus (which they could), but why pay more when you don’t have to?

Always choose to pay in the local currency. If the terminal is only prompting you to pay in CAD, that means the clerk has already selected CAD for you. Kindly ask them to cancel that transaction and have them charge you in the local currency.

What if you need cash?

In the past, many people opted to use local automated banking machines (ABM) since it was typically the quickest and cheapest way to get cash. Like credit cards, they also charge the 2.5% fee, but now there are many other fees to consider. Your debit card* provider at home and the local ABM provider might charge you a one-time fee to use the machine. Even if you maxed out your daily cash withdrawal limit, those fees add up. More recently, some banks have upped the foreign transaction fees to 3.5% when using ABMs so now you’re paying quite a bit to get cash.

Foreign exchange offices can be a good option, but you really need to know your rates. If the exchange rate you’re being quoted is less than 2.5%, that’s a pretty good deal. Your home bank likely has a foreign exchange service, but unless you’re changing for a popular currency such as USD or Euros, there’s a good chance that their markup will be quite healthy. As a reference, when I went to Brazil 8 years ago, my bank’s exchange rate was 9%!

Compare the Best Chequing Accounts in Canada* >

The good thing is that there’s a new option now to get foreign currency for cheap. Stack, which is a prepaid Mastercard doesn’t charge you a fee when using foreign ABMs nor will they charge you any foreign exchange fees to access your money. You only pay Mastercard’s mid-market rate and any fees the local ABM provider may charge.

RELATED: Koho, Stack and Capital One: Which prepaid card is right for you?

In case you’re wondering, don’t bother with traveller’s cheques. Seriously, when was the last time you walked into a store at home or abroad that displayed a sign saying traveller’s cheques accepted here?

Remember, foreign transaction fees can quickly add up

Paying a 2.5% fee when making a purchase in a foreign currency may not seem like a big deal, but those fees can quickly add up. More importantly, why would you want to pay more than you have to? The money you save can be used on a nice meal or attraction tickets when you’re travelling instead.

About Barry Choi

Barry Choi is an award-winning personal finance and travel expert. He appears regularly on a variety of shows in Canada and the U.S. In addition to MoneySense.ca, his work has appeared in The Globe and Mail, The Toronto Star, The Financial Post and Ratehub.ca.

Linkedin Twitter