How To Avoid Credit Card Foreign Transaction Fees When Travelling Abroad

by Barry Choi November 15, 2017 / No Comments

Did you know most credit cards charge a foreign transaction fee? You may have not noticed it since your statement automatically factors in that fee when posting charges to your account, but trust us, you’re getting dinged every time.

Here’s how it works: When you make a purchase in a foreign currency, it’s converted into Canadian or U.S. dollars (depending on the card) before being charged to your card, with a foreign transaction fee charged on top of that — most Canadian credit cards charge 2.5%.

Paying 2.5% may not sound like a big deal, but those fees add up. The good news is, there are a few ways to avoid those foreign transaction fees without much additional work on your end.

Find a card with no foreign transaction fees

There used to be quite a few Canadian credit cards with no foreign transaction fees, but now that CHASE has pulled out of the country, Canadians are left with limited choices. One could argue that the current best available card with no foreign transaction fees is the Home Trust Preferred Visa. It’s great because it has no annual fees, but it also has limited benefits.

Instead of eliminating the fee completely, the Rogers Platinum MasterCard and Fido MasterCard give you 4% cash back on all purchases made in a foreign currency. Simple math shows you’ll end up with a 1.5% cash back return which is great, but unless you’re a Rogers or Fido customer, you’ll only be able to claim that cash back once a year as a statement credit.

Withdraw cash once you arrive

If you need cash, using local ATMs is almost the cheapest option. You’ll still pay the 2.5% foreign transaction fee, but that’s usually still cheaper than exchanging your money at a bank back home or at a currency exchange office.

Keep in mind that any ATM you use may have a one-time withdrawal fee. If that’s the case, max out your daily limit when getting cash so you can reduce the amount of times you pay that fee. Alternatively, some banks will waive that one-time fee if you’re using an ATM that’s part of your bank’s network or if you have a premium chequing account with your bank.

Use a credit card that offsets (or partially offsets) the fee

Paying that foreign transaction fee hurts, but there are a few credit cards that can offset (or partially offset) those fees based on the type of purchase you’re making.

Cash-back credit cards offer a set cash back amount which is based on merchant categories such as groceries, gas, and restaurants. Each network (Visa, MasterCard, American Express, etc.) has different category codes, as well as rules and exceptions by region. But, the idea is that you can still earn your multipliers even when you’re abroad. Here are some of the best cash-back credit cards that will help you reduce your foreign transaction fees while travelling:

Scotiabank Gold American Express

Scotiabank Gold American Express

  • Annual fee: $99
  • Earn 4 Scotia Rewards points per dollar on gas, groceries, entertainment, and restaurants; earn 1 point per dollar on all other purchases
  • Access to Priority Pass airport lounges worldwide
  • Complimentary concierge services

The Scotiabank Gold American Express gives you a 4% return on gas, groceries, entertainment, and restaurants so you end up ahead by 1.5% when you factor in the 2.5% conversion fee. You earn 1% on all other purchases which will help offset that conversion fee.

American Express Cobalt Card

American Express Cobalt Card

  • Annual fee: $120 (charged at $10 monthly)
  • Earn 5 points per dollar on restaurants, coffee shops, bars, grocery stores, and food delivery
  • Earn 2 points per dollar on gas, taxis, public transportation and travel (air, water, rail, or road transport, plus hotels)
  • Earn 1 point per dollar on all other purchases

When the American Express Cobalt Card was announced, it instantly became a game changer since it offered 5 Membership Rewards points per dollar spent on all things related to food (groceries, restaurants, coffee shops, delivery services), as well as 2 points per dollar spent on travel which includes gas and transit. One Membership Reward point is worth about 1% in “cash back,” so you can see why this card is so lucrative.

SimplyCash Preferred Card from American Express

SimplyCash Preferred Card from American Express

  • Annual fee: $99
  • Earn 5% cash back on all purchases for the first six months (up to $300)
  • Earn 2% cash back on all purchases after that, with no limit on how much you can earn back

As a dedicated cash-back card, the SimplyCash Preferred Card from American Express cardholders get 2% cash back on all purchases. You obviously won’t eliminate the conversion fee completely with this card, but paying just 0.5% for those purchases in a foreign currency isn’t too bad.

Tangerine Money-Back Credit Card

Tangerine Money-Back Credit Card

  • No annual fee
  • Earn 2% cash back on purchases in up to three categories of your choice, and 0.5% cash back on everything else
  • No limit on how much cash back you can earn

What makes the Tangerine Money-Back Credit Card so appealing is the fact that you can choose two categories to earn 2% cash back on. You can get a third 2% category if you deposit your cash back directly into a Tangerine Savings Account. If you’re planning a trip in the near future, you can change your categories in advance at any any time, but they don’t come into effect until the start of your next billing cycle.

Also read: