What ‘No Foreign Currency Transaction Fees’ Really Means (and What it Doesn’t Mean)

When you use a standard credit card, and make a purchase outside of your home country, there’s generally a fee.

  • If your purchase is in a foreign currency, you’re subject to your payment network’s foreign exchange rates.
  • Your your card imposes foreign transaction fees, they’ll charge you those — often as much as 3% on top of the amount of the charge.

Even if your card does not impose foreign transaction fees, and if your transaction is in a foreign currency, you’re still going to have the purchase converted to your home currency. And the payment network is likely to make money doing that for you.

You’re still going to be better off with, say, Visa or MasterCard doing it for you rather than a restaurant or hotel — you’ll get a better.

But make no mistake, there’s money being made here in foreign currency conversion even with a no foreign transaction fee card.

Visa has an exchange rate calculator on its website.

  • I looked up the conversion of US dollars to Thai Baht on March 3. 1 USD buys 32.356764 Baht.
  • Then I pulled up the reverse, and 1 Thai Baht buys 0.030976 dollars.
  • A little bit of math tells me there’s a spread of 0.23% between the two rates.

Ok, that’s not a lot and it doesn’t surprise me. But a reader alerted me to the spread on New Zealand dollars.

  • 1 USD buys 1.33734 New Zealand dollars
  • 1 New Zealand dollar buys $0.761424
  • That’s a spread of 1.8%!

This may only be interesting to a handful of people, or maybe this is obvious to everyone already, but Visa essentially has a foreign currency trading business and you’re the other side of their trades.

There’s nothing wrong with there being different prices for buying and selling a currency, of course. You just may not have known you were getting differential pricing when you use your no foreign currency transaction fee credit card.

Of course, it’s much better to do so than to use a card that marks up charges 3%!

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Correct, there is a spread – and that can’t be avoided. The same is true for other credit card companies and even cash or travelers cheque exchanges, to cover the transaction cost and currency risks.
    The folks at flyer guide posted research a while ago that the exchange rates for the different credit card processors are pretty consistent, so a debit and credit card without FX fees is still your best option when traveling abroad…

  2. Do you have any idea how GOOD a spread of 1.8% is? That is excellent. So if that represents the high end of spreads that VISA is charging, then there is no doubt that all you want to do is pay with VISA or MC when traveling. No cash. Cash spreads can run as high as 5%.

  3. I think the following weblink would be useful for folks:


    This describes the process MasterCard uses for determining the Day’s rate and shows the actual rates used in the settlement process for processing transactions presented that day. (Note this is usually after the date the transaction took place at the merchant). It is possible to use this tool to isolate rates for a particular day.

    In all circumstances I have personally run into in my personal and business travel overseas I suggest the following best practices:

    1) ALWAYS pay for the transaction in the currency where you are standing (i.e. Do Not accept the dynamic currency conversion at the merchant to your home currency – the rates the acquirers provide in this transaction I’ve found to be 3-6% to their benefit)

    2) Find a card which offers to waive the foreign currency conversion costs. These are fairly common now with premium level products

    3) When taking out cash from an ATM – try firstly to use one from your home bank (Citi is my bank) to minimize costs. If this is not possible, follow rule 1 above and do not allow the ATM provider to dynamically flip the currency to your home currency. (An ATM at LHR recently presented me for a Sterling withdrawal a USD rate which had a 6% conversion rate cost)

    4) Avoid converting currency at home or especially at the airports. ATMs are readily available and offer better rates (vs. Airport currency changers).

    4) ALWAYS carry an emergency $100 in currency. I was once in Japan and couldn’t find an ATM to accept my ATM card. The $100 allowed me to go to a local bank and convert currency to Yen.

    5) Always call your Bank (ATM and Credit Card) to turn on usage in the markets you’ll be traveling to.

    Disclosure: I work for a Credit card network. The thoughts and views are my own based upon my travel experiences. These views may not necessarily represent the views of my employer.

  4. Isn’t the spread applied even to the cards charging a 3% foreign transaction fee? So in essence, you’d pay 1.8% vs. 4.8% in the case of NZD. You still come out 3% ahead.

  5. How does a “no foreign transaction fee” credit card make any money when it is used in a country that uses the US dollar as its official currency, e.g. Ecuador? I assume that there is no conversion spread.

  6. So have you ever compared the different rates between different banks (i.e. Chase vs Citi vs Barclays) or different CC networks (i.e. Visa vs MC vs Amex)?

    (Assuming of course that all cards are no FX fee cards)

  7. I am curious about Mike’s comment reminding everyone to contact their bank about traveling. I used to always do this, bu certain banks such as Chase have told me that I no longer need to do this. Is there any bad side of notifying these banks anyway?

  8. @Jeff – I assume they make their money from the regular transaction fees in that case.

    @Daneil – I always contact my card issuers when I travel, unless they specifically tell me not to.

  9. Gary, I love your blog and read it daily, but PLEASE proof read your posts. They’re almost always riddled with errors–misspellings, typos, completely missing words, etc. I know you’ve said before that it’s not your priority, but sometimes it’s just embarrassing.

  10. Echoing Tom, the credit card spreads are really good compared to the alternatives. My credit union charges 1% over the interbank (average buy/sell) rate for ATM withdrawals. And the services for large conversions (USForex, XETrade, TransferWise, CurrencyFair, Xoom, etc.) start at 0.5% over interbank for large transactions with high-volume currencies.

  11. So how does the Mastercard spread compare to the Schwab card? For an unbonused purchase in a foreign country, better to use Schwab cash or Barclay Arrival?

  12. Dear Kirby,

    Thanks for the lesson In grammar and spelling. Also, “proofread” is one word.

  13. For essentially retail fx transactions, there is either (i) a spread or (ii) a spread and a fee.

    If anyone thought using a no foreign transaction fee card was getting them currency at mid-market pricing, please contact me as I’d like to speak to you about a bridge I’m selling.

  14. Gary,

    For most of us the spread calculation on VISA USA transactions is meaningless. (How many transactions did Visa USA process for you in the other direction?)

    A lot more meaningful would be to compare the rate you got on a given transaction posting date with mid-range wholesale rates posted by xe.com for that same date. I checked THB in both directions on March 2, and the Visa rate in both directions beat the xe.com mid-range wholesale rates. I did not check NZ currency.


  15. Btw, Gary, an interesting point that I discovered during recent Russia Ruble meltdown: the conversion rate for a purchase is the one that happened when the transaction settles, not initiates. I.e. you bought something for 1000 pesos on day 1, when the rate was 10 pesos for 1 us dollar but on the date when transaction posts the rate is 20 pesos for 1 us dollar, you will ultimately pay $50 and not $100. Same is true when pesos are rising in cost: if the rate will get to 5 pesos for 1 us$, you will pay $200 when the transaction posts.

    This is regarding purchases made with a credit card.

    I’m not aware how it works with debit cards but I can find out (I think the conversion is instantaneous).

  16. I can see this effecting travelrs who incur a refund/return while using their card in a foregin currency.

    EG you pre-pay for a hotel/excusion for $1,200NZD. You later then decide to cancel, and a refund by the seller for $1,200NZD is issued – instead of a net-zero charge on your statement, you’ll owe $16.40USD in the example Gary uses above with the 1.8% difference, as Visa runs the refund through as a NZD->USD conversion.

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