Why foreign transaction fees are (annoying but) no big deal


WARNING: This post contains math.

Are you old enough to remember travelers checks? When I went on my first trip abroad when I was much younger, that was still the de facto method of using currency when in a different country.

These days, however, travelers checks seem as anachronistic as fax machines. Instead, when people go abroad, they will pull cash from an ATM or just purchase things with cards. These methods are not only more convenient than traveler’s checks (which are a pain to cash) but they offer the best possible exchange rate, so much better than if you were to convert currency at one of those exchange kiosks.

(Pro tip: Never use exchange kiosks unless you absolutely have to.)

Unfortunately, when you check your statement you may find an unhappy surprise: your bank may have charged you up to 3% extra on every purchase, billed as a “foreign transaction fee”.

This fee is a bummer, and it’s no doubt worth trying to minimize or eliminate it if you can. And some credit cards will offer that they won’t charge any foreign transaction fees for purchases. But is that a good reason to get that card?

If that’s the only reason you’re getting that card, no. You’re better off paying the fees. Here’s why:

Reminder: Save more than you spend

The average foreign transaction fee (FTF) is about 3%. And unlike an ATM surcharge, which is typically a flat fee, this fee grows the more you spend.

Now on to those credit cards that offer no foreign transaction fees. For example, at the moment there is a card by a major US airline that offers its no-FTF card for a $89 annual fee. You may be tempted to get that card as opposed to being dinged with a 3% charge every time.

But taken in isolation, this doesn’t make sense for most people. Remember, the rule of thumb for these situations is: if you’re spending money to save money, you must save more than you spend in order for the scheme to make sense.

So on one hand, a $89 fee. On the other, a 3% charge.

So here’s the question you should be asking: how much money would you have to spend in order to net a savings?

This one is easy to calculate, but the results took even me by surprise. First we start out with an equation:

N * 3% = $89

We want to solve for N. That is the minimum amount we would need to be spending on the card to make up for the $89 fee:

N = $89 / 3%
N = $89 / 0.03
N = $2,967

So in order to make your money back, you would need to spend almost $3,000 dollars. Minimum. And you must put it all on this card. No cash or ATM purchases count.

Now, our tax brackets may be different, but do you really want to be on the hook for “needing” to spend almost 3k overseas in a year, just to make your money back? Seems like a lot to me.

Hedging bets

Now, there are other reasons to get a card like this. In this specific example, the card gives you 50,000 miles upon first use, so one could argue that the $89 fee is paying for those 50,000 miles. And if you want to pay $89 for 50,000 miles, then fine, but that’s a different rationale.

Also, if you find a card that has no annual fee the first year, then that’s also a different story too. But even then for that first year you’re still stuck using one mode of payment, which may not always make sense.

So while there are caveats, the main point stands: Don’t get a card solely for its not charging FTFs.

How much is 3% really?

3% does seem like a lot, I admit. But is it?

On an overseas trip, you’ll most likely pay for your airfare in your domestic currency. That leaves lodging, transportation, food, and souvenirs as what you’ll spend in the local currency.

Let’s say you spend $100 per day on your trip, which doesn’t seem too unreasonable in many parts of the world. How much is being eaten away by FTFs per day?


Now, I’m all for maximizing value, but if you’re really concerned about $3 a day, maybe you shouldn’t be doing international travel right now. Or rather, maybe you should head to a place when you don’t need to spend $100 a day.


My credit union gives me a debit card which charges FTFs, but only 1%. So in the above scenario of $100 a day, that’s $1 being taken away. Fees are annoying, but I think I can handle that. I bet you could too. It sure beats travelers checks.

But enough about me. What do you do about foreign transaction fees?

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