What is a credit card with no foreign transaction fee?

A credit card with no foreign transaction fee is, as the name suggests, a card that does not charge you for using your card to buy from an overseas business or retailer.

If you are purchasing from an online store based in another country, or using your card overseas, you may be charged foreign transaction fees.

Further, if you make a purchase with your credit card in a foreign currency, you may face both foreign transaction fees and currency conversion fees. 

What are foreign transaction fees?

Foreign transaction fees are an additional amount charged to your credit card when you make a purchase with a retailer outside of Australia. This fee is typically between 2 and 4 per cent, yet can vary depending on your bank and credit card. 

Foreign transaction fees are charged to cover the cost of processing a foreign transaction, to help offset greater fraud risks associated with international transactions.

Are foreign transaction fees the same as currency conversion fees?

No, foreign transaction fees are not the same as currency conversion fees. 

Currency conversion fees are charged to cover the cost of converting foreign currency back into your local currency. Foreign transaction fees are a general cost associated with any and all transactions with overseas retailers or overseas ATMs.

Example:

If you are shopping with an overseas online retailer that charges you in Australian dollars, you will not be charged a currency conversion fee, but could be charged a foreign transaction fee.

If you are shopping overseas and you need to pay for your purchase in a foreign currency, you may be charged both a foreign transaction fee and a currency conversion fee.

If you get a credit card with no foreign transaction fees, and you were to purchase from an overseas retailer that charges you in a foreign currency, you may only be charged the currency conversion fee.

How do you compare credit cards with no foreign transaction fees?

When you’re comparing any credit card to find the best option for you, it’s important to make a feature-by-feature comparison.

It’s no different when comparing credit cards with no foreign transaction fees.

The features you should compare when deciding which is the best credit card for you include:

  • Interest rate on purchases
  • Cash advance interest rate
  • Cash advance fees
  • Ongoing fees, either monthly or annually
  • Rewards programs
  • Extra benefits, like frequent flyer points
  • Interest-free days
  • Balance transfer fees

What is the cheapest credit card with no foreign transaction fee?

The cheapest card with no foreign transaction fee will be the card that has the lowest total cost. This will depend on many of the features mentioned above, including the cash advance rate, interest rate on purchases and other fees and charges.

Before you apply for a credit card with no foreign transaction fees, make sure you check the Product Disclosure Statement (PDS) or Key Facts Sheet. Whilst they are often not clearly advertised, they will always be available to you if you ask the lender. 

These documents will provide you with all the information you need on the credit cards you are comparing, so you can calculate the total cost of each card and compare apples with apples.

In order to secure the best credit card for you, and the cheapest deal, keep an eye out for hidden costs, like promotional low rates that revert to higher ones after a certain period of time. 

What are the pros and cons of credit cards with no foreign transaction fees?

A credit card with no foreign transaction fees may seem appealing to you, however as with all credit cards and financial products, there are both pros and cons.

Before you apply for a credit card, make sure you are eligible. If your application for credit is rejected, this will negatively impact your credit score

When you have negative marks on your credit score, like a credit card rejection, this may affect your chance of being approved for credit in the future.

What are the benefits of credit card with no foreign transaction fees

  • No foreign transaction fees: These cards will not charge you for the privilege of buying online from an overseas retailer or when buying on an overseas holiday
  • Cheaper holidays: If you are travelling overseas, and already use a credit card that charges foreign transaction fees, you could save hundreds of dollars by switching

What are the disadvantages of credit card with no foreign transaction fees

  • Higher levels of debt: There is a risk that borrowers may overspend on their credit card, if they are not charged foreign transaction fees, yet this can lead to higher levels of debt
  • Fees still apply: Currency conversion and other fees may still apply to foreign transactions, so be sure to check the PDS before you apply

How much can you save with a credit card that has no foreign transaction fee?

To see how a credit card with no foreign transaction fee could save you hundreds of dollars, we need to do a like for like comparison.

Let’s say, for instance, you’re going on a family holiday to France, from Australia. You purchase flights, accommodation and tours from a French website, in Australian currency. You then spend €1800 in France during your six day holiday. The currency conversion fee is 1% of the €1800 spent, which brings your total spending to €1818 or $2942.41 Australian dollars. 

Below you can see the difference between a credit card with no foreign transaction fees, and one that charges 3%:

  No foreign transaction fee  3% foreign transaction fee 
Flights ($3,000AUD) $3,000 $3,090
Accommodation ($1,500AUD) $1500 $1,545
Holiday tours ($740AUD) $740 $762.20
Spending (€1,818 / $2,942.41AUD) $2942.41 $3,030.68
TOTAL $8,182.41 $8,427.88

That’s a saving of $245.47 over the six day holiday.