How do foreign transaction fees work?

What are foreign transaction fees?

Foreign transaction fees are charges that many debit or credit card issuers and banks apply to purchases in a foreign currency or those that pass through a foreign bank. For example, the following activities may incur a foreign transaction fee.

Purchases abroad

When people purchase abroad, their bank or debit or credit card issuer may charge a fee for transactions made in a foreign currency. Buying souvenirs with a UK debit or credit card while on holiday in Spain might incur these fees, for example. It’s worth noting that such fees apply to physical purchases made using a debit or credit card in a foreign country. Similarly, withdrawing cash from an ATM abroad often includes a hefty foreign transaction fee.

Online cross-border purchases

When shopping online from international retailers, consumers may incur cross-border fees from their payment provider. Ordering jeans or a book from a North America-based website using a UK debit or credit card could add a foreign transaction fee to the cost.

Currency conversion

When a transaction involves converting money to a different currency, banks and payment providers often charge a conversion fee, too. When someone swaps sterling for euro using their bank, for example, they may be charged a 1% currency conversion fee. (Learn about PayPal fees here).

International money transfer

When sending money internationally, banks or transfer services may charge a fee for processing and facilitating the transfer. Making an international bank transfer to someone in the United States or Australia might include a flat fee and a conversion charge. Fees may also vary across providers.

Travel-related purchases

Booking international flights, hotels, or other travel services, can also yield additional fees for transactions processed outside the buyer’s home country. For example, booking a hotel in Greece using a UK debit or credit card may to add a foreign transaction fee to the total bill.

How are foreign transaction fees calculated?

Banks and debit or credit card issuers have several ways to set foreign transaction fees. Here’s how they're calculated:

• Providers may calculate based on how much a person spent in a specific transaction when using a card abroad or on an overseas retailer’s website.
• These fees are usually calculated as a percentage of the transaction amount.
• The fee percentage might also differ between using a credit card and a debit card.

Debit cards

Debit cards do not prevent foreign transaction fees. In fact, using UK debit cards abroad abroad may be a costly activity. Here's are a few reasons why:

• Overseas ATM withdrawals may include flat fees too. Again, they vary by bank but are also charged per transaction.
• The fee is typically immediately taken from the cardholder’s bank account at the time of the transaction.

Credit Cards

Distinct from debit cards, credit cards often charge a higher foreign transaction fee percentage. Here are some key points:

• Like debit cards, credit cards may also include flat fees for transactions like cash advances at overseas ATMs — often higher than those for debit cards.
• When the balance is not paid off immediately, transactions made abroad can incur interest at a standard, or at higher rates. Certain types of credit cards — especially travel credit cards — may not charge any foreign transaction fees, as they are designed for holidaymakers.

Send money* quickly and securely with PayPal’s digital wallet

The PayPal digital wallet can store bank account debit and credit card information for online payments, money transfers, and QR code payments.

• PayPal can also be used to send money abroad, almost anywhere and anytime.
• Simple fees are usually shown before money transfer or purchase is made.
• PayPal shows fees for converting currency and sending money to an account abroad.