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How Foreign Transaction Fees Work

By: Hannah Logan

Have you ever made a purchase while travelling to a foreign country or even when shopping online on an American website and noticed that, when you got your credit card statement, the charge was higher than you had expected?

Most people will chalk it up to currency exchange rates, but there is more to it than that. Yes, the exchange rate will play a role, however, many people often don’t realize is that they are also paying a foreign transaction fee when they use their credit card. 

What is a foreign transaction fee?

So, what exactly is a foreign transaction fee and how does it work? The foreign transaction fee is an additional fee on any purchase made in a foreign currency. So, as mentioned above, this can be when you are travelling and use your credit card while shopping or making a purchase abroad as well as from shopping online when paying in a different currency. 

The rate of the foreign transaction fee is 2.5% on Canadian credit cards. So, for every $100 spent, you will pay an additional $2.50 in foreign transaction fees. It’s also worth noting that some Canadian banks charge as much as 3.5% fee when you use foreign ATMs to withdraw cash.

While that may not seem like a lot, it can add up pretty quickly. Especially if you are travelling for a long period of time or making an expensive purchase. 

Is the foreign transaction fee different than the exchange rate?

Yes. It is important to note that you will have the pay the foreign transaction fee on top of the exchange rate. So, say you are travelling in France and use your credit card to book a night at a hotel in Paris. You will be charged the exchange as set by the card issuer. E.g., American Express, Visa, Mastercard. Plus, the 2.5% foreign transaction fee. 

If you’re not familiar with foreign transaction fees, you might assume that you’ll get the rates that you see on an exchange app or website like But that’s not the case since you need to account for the fees.

How can I avoid paying foreign transaction fees?

While the majority of Canadian credit cards  include foreign transaction fees, there are a number of credit card options that waive these charges as one of their perks/benefits. If you are someone who shops a lot online on websites that charge in USD (or a different currency) or you are a frequent traveller, then it’s worth your time to look into getting a credit card with no foreign transaction fees.  

There are plenty of credit cards that offer this perk ranging from popular travel credit cards to no annual fee credit cards. So do some research to figure out what option would be the best fit for your wallet.

Keep in mind that credit cards with no foreign exchange fees only waive the foreign exchange fee when applicable. It’s not an automatic 2.5% off your bill when you shop abroad. The purchase has to be made in a foreign currency. If you choose to pay in Canadian dollars, it won’t come into effect.

What are some other tips to avoid extra credit card fees when travelling?

Applying for a credit card with no foreign exchange fees will be a big help on cutting down on extra fees when you travel. However, another handy tip to keep in mind is t0 be mindful of what currency you choose to pay in.

Oftentimes, when shopping abroad, once you swipe your credit card you will be asked if you would like to pay in the local currency or in Canadian dollars. Oftentimes, we select Canadian dollars because we think it just makes things easier. However, this is a mistake. Choosing to pay in Canadian dollars rather than the local currency actually means you will end up paying more. 


This is because if you charge in the local currency, your credit card provider will determine the exchange rate which will be closer to the actual rate. If you choose to charge in Canadian dollars at the point of sale, the exchange rate is determined by the merchant, which almost always means it will be a higher rate in their favour, not yours.

Final notes

Nobody wants to pay more than they have to on a purchase, so making note of these tips can come in really handy the next time you are on vacation or shopping in a foreign currency. Look into a credit card with no foreign exchange fees to automatically eliminate that added 2.5% and if presented with the opportunity, remember to always choose to pay in the local currency rather than Canadian to help keep your costs down as much as possible. 

Hannah Logan is a freelance writer based in Ottawa, Canada. She specializes in finance and travel writing and has bylines at Greedy Rates, Young and Thrifty, Fodor's Travel, O Magazine, and more. She also runs two travel blogs, Eat Sleep Breathe Travel and Ireland Stole My Heart. You can find her on Instagram and Twitter @hannahlogan21