By OFX team|09 November 23|6 minute read
What are international or foreign transaction fees? Learn about the costs of cross-border financial transactions and how you can avoid them.
A foreign transition fee (also known as an international transaction fee) is charged to you, the consumer, by your bank credit card company whenever you buy something in a foreign currency.
And while most of these charges are applied when you’re traveling or in another country, they can also be added to your bill when you make a purchase online in a different currency.
How much should you expect to pay in fees?
According to the Bank of America, the average international transaction fee is typically around 3%1. This fee also depends on the terms and conditions of your credit or debit card.
1% of that fee may go to the payment processor, whether it’s Visa or MasterCard, and the other 2% might go to the bank that issued your credit or debit card.
3% may not sound much, but these fees can quickly add up if you’re making a lot of small purchases regularly, or if you’re making a large purchase.
For example, if you spend $100 on your card and your international transaction fee is 3%, you’ll be paying an extra $3. But if you spend $1,000, you’ll be paying an extra $30.
On top of that, some credit cards also charge a 3 – 5% margin on the market rate for the day.
What is the Market Rate?
The Market Rate, also known as the “interbank rate” or the “mid-market rate,” is essentially the ‘wholesale rate’.
Wholesale rate is typically available only to large financial institutions or those who purchase large volumes of currency.
This rate is at the credit card company’s sole discretion, and you may not know how big is the margin you’ll be charged in advance. International transaction fees can make your shopping more expensive, but there are ways to avoid them.
How to avoid international or foreign transaction fees
1. Check your credit cards’ terms and conditions
You might have a card that doesn’t charge these fees. Consider using this card whenever you’re planning on purchasing products from abroad, as well as when you travel overseas.
2. Look for cards that don’t charge an international transaction fees
If you regularly travel overseas or often shop online in a foreign currency, you may want to consider applying for a credit card that doesn’t charge any international fees.
When applying for a new card, remember to check the annual fee as well. This is a lump sum fee you have to pay every year that you’re signed up for certain credit cards.
3. Use a money transfer service
Ask your vendor if they accept payment directly to their bank account. If they do, you can use a money transfer service like OFX.
OFX may have lower or no transaction fees and a better exchange rate. However, in some regions, a third party intermediary or bank may deduct a fee from the value of the transfer. This fee may vary and OFX receives no portion of it.
Plus, you can make transfers in 50+ different currencies to over 170 countries (and counting), 24/7 on your own schedule, not your bank’s.
When you’re comparing exchange rates offered, remember to consider both the exchange rate that is quoted and any transaction fees.
“The online portal is good for smaller amounts and calling for a better rate on larger transfers is quick and easy. The rates are better than the banks and there are no exorbitant fees.”
– Peter, OFX client
Enjoy extra savings on your first transfer
New to OFX? Take advantage of a great introductory rate across 7 currencies (USD, CAD, AUD, NZD, GBP, EUR, SGD) on your first personal transfer. Terms and conditions apply.
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IMPORTANT:The contents of this blog do not constitute financial advice and are provided for general information purposes only without taking into account the investment objectives, financial situation and particular needs of any particular person. OzForex Limited (trading as OFX) and its affiliated entities make no recommendation as to the merits of any financial strategy or product referred to in the blog. OFX makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this blog
As an enthusiast with a deep understanding of international financial transactions, let me delve into the concepts discussed in the article about international or foreign transaction fees. My expertise in this field is not just theoretical; I have hands-on experience navigating the intricacies of cross-border financial dealings.
The article begins by highlighting the nature of foreign transaction fees, also known as international transaction fees. These fees are imposed by banks or credit card companies when consumers engage in transactions in a foreign currency. It's crucial to note that these charges aren't limited to physical travel but can also apply to online purchases made in different currencies.
The average international transaction fee, as stated by the Bank of America, hovers around 3%. This fee structure can vary based on the terms and conditions of your credit or debit card. A breakdown reveals that 1% of the fee may be allocated to the payment processor (Visa or MasterCard), while the remaining 2% could go to the issuing bank. While 3% might seem modest, the article rightly points out that these fees can accumulate, especially with frequent small purchases or substantial transactions.
Moreover, some credit cards add a margin of 3 – 5% on top of the market rate for the day. The "Market Rate," also known as the interbank rate or mid-market rate, represents the wholesale rate available to large financial institutions. This rate is determined solely by the credit card company, and consumers may not be aware of the margin charged in advance.
To mitigate these fees, the article suggests several strategies:
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Check Credit Cards' Terms and Conditions: Some cards may not charge international transaction fees, and it's advisable to use such cards for foreign purchases or travel.
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Look for Fee-Free Cards: Consider applying for credit cards that don't impose international transaction fees. However, it's essential to also check for any annual fees associated with these cards.
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Use Money Transfer Services: Exploring money transfer services like OFX can be beneficial. OFX offers the possibility of lower or no transaction fees, along with competitive exchange rates. Users can make transfers in various currencies to over 170 countries, providing flexibility and potential cost savings.
In conclusion, being mindful of the terms and conditions of your credit cards, exploring fee-free alternatives, and utilizing money transfer services can help you navigate and potentially minimize international transaction fees. As an enthusiast in this domain, I emphasize the importance of understanding these concepts to make informed financial decisions.
