How to Avoid Foreign Transaction Fees

Credit cards have improved dramatically in recent years for overseas purchases. About a decade ago, most banks imposed a three percent surcharge on foreign credit card purchases—even those made in U.S. dollars. However, now most major issuers—including Chase, Bank of America, Capital One, and American Express—offer multiple credit cards with no foreign transaction fees. For the most part, cards that target travelers typically no longer have foreign surcharges.

Some of our top picks for the best credit cards with no foreign transaction fees fees are:

• Capital One Venture X Rewards
• Bank of America Travel Rewards
• Capital One Savor Cash Rewards
• Chase Sapphire Preferred

When you make a credit card purchase abroad, the payment terminal will often ask whether you’d like to be charged in the local currency or in U.S. dollars. Always choose the local currency. If you select U.S. dollars, the company processing the transaction sets the exchange rate, and those rates are usually much worse than what your bank offers.

Even if your credit card charges a small foreign transaction fee, it’s typically still cheaper than paying the inflated rates at a currency exchange counter.

Related: 10 Travel Money Mistakes to Avoid

Using your debit card to withdraw cash abroad is usually the most cost-effective way to obtain cash for a trip, especially compared to exchanging currency at an airport kiosk.

In most of the world, you can use an ATM card issued by a U.S. bank at an ATM in a foreign country to withdraw local currency. The actual exchange is carried out by the international American Express, MasterCard, or Visa networks, and the exchange fee is typically one percent or less.

However, most U.S. banks add a surcharge of $3 to $5 per withdrawal from any ATM other than their own, including virtually all ATMs outside the United States. Additionally, your bank will likely charge you an exchange fee, and the ATM itself will likely impose a fee.

Many major international hub airports have removed ATMs operated by local banks and replaced them with ATMs operated by exchange bureaus, such as Travelex. The signs on these ATMs say "no fees," which is somewhat true. However, your money will be exchanged at the same retail rate you get at the exchange counter, and that rate is typically around 10 to 15 percent worse than the official bank rate. And then you may have to pay fees from own bank as well.

To avoid paying fees, follow these two tips:

• If your usual ATM card is from a big bank with stiff withdrawal fees, consider opening a no-fee checking account at one of the many small banks that waive or cover foreign ATM charges. Schwab Bank Investor Checking accounts, for example, don’t charge currency conversion fees and will also refund unlimited ATM fees.
• If you don't have any local currency when you arrive in a foreign country, avoid airport ATMs operated by exchange bureaus if you can. If you can't, get only as much as you need to get to your hotel.

Related: 10 Smart Ways to Carry Money While Traveling