Did you know you get charged additional foreign exchange fees every time you swipe your credit card abroad? You might even be charged it when making online purchases.
Foreign exchange fees (also known as foreign transaction/ FX fees) are a hidden charge that’s easily overlooked when picking a credit card, but such fees can rapidly accumulate and end up costing a lot.
To avoid any nasty surprises when you get your credit bill at the end of the month, here’s what you need to know about foreign exchange fees.
What are foreign exchange fees/ rates?
Foreign exchange fees (FX fees) are additional fees you pay when using your credit card overseas. They generally add to one to three percent of your total purchase. For instance, if your credit card has a foreign exchange fee of three percent, and you use it abroad to buy an item worth $500, you will get charged an additional $15 for your purchase. Therefore, the total amount you would pay to buy the item is $515.
Now imagine going on holiday with your family, and spending $6,000 on your credit card. In reality, you’re spending $6,180 – $180 just for the privilege of using your credit card.
How is it calculated?
Foreign exchange fees are calculated as a combination of a fee that your network (i.e Mastercard, Visa) and your credit card provider or bank charge for processing transactions with international merchants. Keep in mind, foreign exchange fees vary for different service providers.
Pay in local currency or AED?
You’ll often get asked when you’re shopping overseas if you want to pay in local currency or AED. The rate the merchant charges you to convert to AED at the point of sale may not be as favorable as the rate your own bank offers you as a customer, so be sure to ask the merchant what the conversion rate/ final figure in AED is before you say yes.
Your bank, however, may not then charge you an FX fee if the amount charged to your credit card by the merchant has already been converted to AED so you need to weigh up the pros and cons – what cost your FX fee vs the conversion rate you’re being charged in AED by the merchant?
If you keep the information at hand when you travel in terms of the FX fee and the conversion rate your bank charges, you should be well placed to make a decision that could save you significant chunks of cash each time you spend.
How do I avoid paying these charges?
- You can look for a card which does not have any foreign exchange fees.
- If that is not an option, make sure you know how much extra you’re spending on purchases abroad.
- Another option is to apply for a separate credit card with lower foreign exchange fees and use it only for travel.
- You can also just opt to spend in local cash – just remember to keep some for the airport and any final purchases!
Final warning: Remember, banks can charge you a foreign exchange fee even, when shopping online: as long as the purchase is processed in another country, you will get charged.
- Search for a credit cards in the UAE with low foreign exchange (FX) rates – the list is already sorted for you; just look at the last column for the ‘FX rate’
- Search for a credit cards in Saudi Arabia with low foreign exchange (FX) rates – the list is already sorted for you; just look at the last column for the ‘FX rate’