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Education on How Foreign Transaction Fees Work

Due to a recent fraud debacle (thanks a lot CapitalOne!) I had to cancel my no foreign transaction fee credit card. At the moment, I am NOT looking for a replacement but did have a general question about how foreign transaction fees work. Also, please forgive my financial stupidity if this is obvious to most (LOL)!

For example, if I am booking directly on an Italian hotel's website while in the United States would I be charged a foreign transaction fee, or is it ONLY if I am physically in Italy and using the card at a restaurant, hotel, shop, etc? Also, does it differ if I am booking the same Italian hotel but through Booking.com?

Thanks for your response.

Posted by
350 posts

My understanding is basically it depends on who is processing the card at the Point-Of-Sale (POS). So, if you are booking directly on the Italian website, you will be charged a foreign transaction fee. If you are booking via a third-party American website, and that American website is probably processing your credit card, then you won't be charged a foreign transaction fee.

It's not a question about whether you will be there physically in Italy or not. I believe booking.com is an American website?

You can also think about it this way. If you are physically in Italy now, but you decided you wanted to purchase something from Amazon.com (not Amazon.italy or whatever equivalent Italian version there is) that will be delivered to your American home, you won't be charged a foreign transaction fee because Amazon.com is a US company processing in the US. At least, this is how I understand it.

Posted by
23223 posts

Ok -- here are the order of fees that you may or may not be charge. It starts with point of service and the card you are using. ALL fees are determined by your card issuer and where the card is used. . One exception -- a local vendor may charge you a fee to USE your card. But that is rare.

When you first use you credit card it is process through a credit card network -- Most common are Plus (Mastercard) and Cirrus (VISA). There will be a fee of less than 1% buried in the exchange rate for processing your credit card. Next your card charge is present to your card issuer for payment. This is where the big fees are if applied. You may have a 1 to 5% charge, could have a single usage fee - maybe $5 -- all determined by the card issuer. - generally your bank. Fees are determined where the card is used.

Posted by
4506 posts

You will get two line items on your statement for each transaction. First will be the item charge converted to $$. Normally it would list the original euro or crown (or whatever) charge and the conversion rate to $$ in this line item.

Then there will be a second line item right under the first that says “foreign transaction fee” and then the fee, usually 3%.

My experience is that Booking.com charges the item locally in the local currency. Look through their terms and it will say the US $ cost is approximate. Your physical location is not relevant.

Posted by
23223 posts

Not quite true. I know it doesn't make sense but if you are charge in Europe in dollars you will still pay a foreign transaction fee on that transaction. I have seen it first hand when I wasn't paying attention and was charged in dollars instead of euro one time. The double talk from VISA was classic but the amount charged was only worth one phone call. But -- now I always pay attention with my credit cards. Cheap lesson.

Posted by
967 posts

On a site like booking.com if the price is in dollars and you pay it up front then that is the price you’ll pay with no exchange fees or anything else.

If you book a rate that is book now and pay later at the hotel then you’ll pay the amount in euros and the exchange rate on the day you pay (not the day you booked) will apply and you will be charged fees according to your bank’s policy.

Posted by
6781 posts

Foreign transaction fees – FTF – typically run around 3% (when you use a card that charges them).

Do yourself a favor, and get a card that doesn't charge FTF. There are lots of them.

As noted above, the question is really whether you are paying in Euros or US dollars. Always refuse DCC, aka Dynamic Currency Conversion (it won't be called that – it'll just offer you the "convenience" of paying in your very own country's currency, aw, how convenient...at a very high cost to you). If you have a no-FTF card, always just pay in the LOCAL currency (in this case in Euros). Easy.

Posted by
350 posts

Unfortunately the USA, as with chip and pin technology and contactless payments, is well behind the curve with these new digital banks.

I think this is somewhat false. Back In the 2000s ING Direct was available in the US. They were bought out by Capital One. You can certainly open up a Capital One bank account without ever going to a branch. You can do all your banking with them digitally. Discover Bank is the sane. You can also open many credit union accounts this way. While they aren’t digital banks, you never have to go to their location to open an account or get a card or get money. I’m sure this is the same for many other banks In the US

Posted by
350 posts

Are there any banks, digital or otherwise, in the US which provide FX transactions without a fee using a card that doesn't carry monthly or annual fees and available to anyone online ? If so, that's the way to go.

Yes, there certainly are and you can open most, if not all of them online without ever setting foot into a physical branch. Do an internet search and many options come up. The ones I keep hearing about include Capital One, US Bank, Wells Fargo, PenFed Credit Union, Discover (although as noted elsewhere, Discover isn't popular in Europe at all). There are options! Oh...and if you have an Apple Card (Goldman Sachs Bank), that has no foreign transaction fees either. To get the Apple Card, you need an iPhone, I believe: https://card.apple.com/apply/

Posted by
8315 posts

Just because a card has an annual fee does not make it a bad financial decision. What matters is what you receive for that fee and how it fits with your use of the card. A frequent traveler is far ahead using a premium credit card with multiple perks and a high rate of points or cash benefit than using a no fee card that doesn't have those benefits.

Posted by
27004 posts

Helen, I'm not sure paying up-front in dollars for a hotel room via booking.com avoids the credit card's foreign transaction fee. Booking.com isn't a US company. I don't see why this situation would be different from buying something from a European website and accepting DCC during the transaction.