A Guide to Foreign Transaction Fees & How to Avoid Them

When using your credit card for international purchases, foreign transaction fees can add up. These fees cover the cost of processing transactions in foreign currencies or outside of Singapore. Fortunately, with the right credit card, you can avoid these extra charges altogether.

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A foreign transaction fee is a charge levied by credit card issuers on purchases made in a foreign currency or processed outside of Singapore. These fees are typically a percentage of the transaction amount, usually ranging from 2% to 3%. Essentially, whenever you use your credit card for a purchase that involves a currency conversion or is processed by a bank outside of Singapore, you'll likely incur this fee.

For instance, if you're travelling in Europe and use your credit card to pay for a €100 souvenir, you might see an additional charge of S$3 to S$4.50 on your statement due to the foreign transaction fee. Similarly, even if you're in Singapore and make an online purchase from a US-based retailer in USD, you'll still be subject to this fee.

These fees can quickly accumulate, especially for frequent travellers or those who regularly make international purchases. Therefore, it's crucial to be aware of these charges and understand how to avoid them. Choosing the right credit card with no foreign transaction fees can lead to significant savings in the long run.

>> MORE: Types of credit card fees (and how to avoid them)

While both foreign transaction fees and currency conversion fees can appear on your credit card statement for international purchases, they are distinct charges. A foreign transaction fee is levied by your bank for processing a payment that involves a foreign currency or is processed outside of Singapore.

On the other hand, a currency conversion fee, also known as a foreign exchange markup, is applied when the currency of your transaction needs to be converted to SGD. This fee is typically included in the exchange rate used for the conversion, rather than being listed as a separate charge.

For example, if you buy a gadget from a UK website for £500, your bank will first convert this amount to SGD using an exchange rate that includes a markup. This markup is the currency conversion fee. Then, on top of that, you might be charged a foreign transaction fee for the overseas purchase.

Understanding the difference between these two fees can help you make more informed decisions when using your credit card abroad or for international online purchases.

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The most straightforward way to avoid foreign transaction fees is to use a credit card that doesn't charge them. Many credit cards, particularly those designed for travel, offer this as a key benefit. When choosing a credit card, look for phrases like "no foreign transaction fees" or "0% foreign transaction fees" in the card's features.

Another way to avoid these fees is to be mindful of the currency you use for transactions. If you're making an online purchase from an international retailer, see if they offer the option to pay in SGD. This way, you can potentially avoid the foreign transaction fee, although you might still incur a currency conversion fee.

Additionally, some credit cards offer travel perks that can help you avoid foreign transaction fees. For example, certain cards provide complimentary travel insurance that includes coverage for foreign transaction fees.

By being aware of these options and choosing the right credit card for your needs, you can effectively avoid foreign transaction fees and save money on your international purchases.

>> MORE: Multi-currency cards and credit cards for overseas spend

While using cash might seem like a surefire way to avoid foreign transaction fees, it's not always the most practical or safe option, especially for international travel. Carrying large amounts of cash can make you a target for theft, and losing your cash could leave you stranded in a foreign country.

Moreover, exchanging currency often involves unfavourable exchange rates and additional fees, which can eat into your travel budget. You might end up paying more in conversion fees than you would have with a credit card that charges foreign transaction fees.

However, having some cash on hand can be useful for smaller purchases or in situations where credit cards aren't accepted. Consider striking a balance between using cash and credit cards, opting for a credit card with no foreign transaction fees (and the outlook of favourable rewards) for larger purchases and keeping a small amount of cash for incidentals.

Ultimately, the decision of whether to use cash or credit cards abroad depends on your individual circumstances and risk tolerance. Weigh the pros and cons of each option carefully before making a decision.