At every credit card issuing bank, there seems to be at least one person whose entire job is to come up with novel ways to charge their customers additional fees that are as close as possible to pure profit. If so, the crowning achievement of this profession has been the creation of the foreign transaction fee, or FTF. Fortunately for customers, these fees are continuously being exposed as unnecessary, and the market is finally turning against them.
What Are Foreign Transaction Fees?
Foreign transaction fees are generally charged on all transactions processed outside of the United States, regardless of the currency. This is not to be confused with a currency conversion fee. For example, dollar transactions are quite popular in many countries, yet banks will still charge their customers a FTF. These charges can even be imposed on transactions made performed inside the United States, but processed by foreign companies.
Are These Fees Justified?
In a word, no. When exchanging currencies, banks receive very favourable exchange rates called interbank currency exchange rates. The process of converting your foreign currency charges is therefore simply a mathematical calculation of an immeasurably small cost. Nevertheless, most banks persist in charging an incredibly high 3% fee for this simple calculation.
One could argue that there are inherent costs in doing business with foreign companies, but even this line of reasoning is contradicted by the bank’s practices. For example, American Express charges customers of all its cards (except their Platinum card) a 2.7% FTF, even for visiting such benign destinations as Canada. At the same time, they also charge their Canadian customers a similar fee for purchases made in the United States or any country other than Canada.
How To Avoid Foreign Transaction Fees
The best way to eliminate these fees is to choose a credit card with no foreign transaction fees. Thankfully, many banks have begun dropping these fees on some or all of their cards. Capital One has had the longest standing tradition of not charging FTFs, and PenFed, the Pentagon Federal Credit Union has offered many cards without these fees. In 2011, PenFed announced they were dropping these fees on all of their cards. Discover also agreed to eliminate these fees by the end of 2011.
After raising their FTF from 2% to 2.7% in recent years, American Express waived this fee on their Platinum and Centurion cards, but they remain on all their other publicly available products. Chase has also removed this fee from many of their premium cards marketed towards travellers, such as their British Airways, Continental Airlines Presidential Plus, and Chase Sapphire Preferred cards.
The only other potential way to avoid these fees is to complain to your bank when you receive them. This method can occasionally result in a reversal of foreign transaction charges, but ultimately, the only true way to avoid these charges is to use one of the growing number of credit cards that waive these fees whenever making international transactions.