How Do Credit Card Foreign Transaction Fees Work?
Using a UK card abroad often costs more than the price on the receipt. Between the issuer’s foreign usage fee, separate charges for cash machines and the option some retailers offer to bill you in pounds, the true cost of an overseas purchase is easy to underestimate. This article explains each of those charges, how they are calculated and what to check before you travel.
What Fees Can a Foreign Card Payment Include?
Two or three separate charges can apply to a single overseas payment, and they come from different places.
- A non-sterling transaction fee, sometimes called a foreign transaction fee: a percentage charge from your card issuer for any purchase made in a currency other than pounds sterling.
- A card scheme fee: Visa and Mastercard, the payment schemes that process most UK card payments, charge a small amount on international transactions, generally less than 1%. Some issuers absorb this rather than passing it on.
- A cash fee, if you withdraw money: charged on top of the non-sterling fee, it can also apply to cash-like transactions such as buying foreign currency on the card.
Which of these apply depends on your card, so the starting point is your own agreement rather than a general rule.
What Is a Non-Sterling Transaction Fee and How Is It Calculated?
A non-sterling transaction fee is a percentage charge your card issuer adds whenever a payment is made in a foreign currency. The issuer converts the amount using the exchange rate set by the payment scheme, Visa or Mastercard, at the time of purchase, then adds the fee on top. On your statement the charge usually appears under that exact name, so it is easy to spot.
A worked example: you buy something for €100 and the exchange rate is €1 = £0.8670, so the purchase converts to £86.70. If your card charges a 2.75% non-sterling fee, that adds £2.38, and £89.08 leaves your account for a €100 purchase. The exact rate used appears on your statement, and past and current scheme rates are published on the Visa and Mastercard websites.
How Big Are These Fees in Practice?
Most cards that charge a foreign transaction fee take between 1% and 3% of the transaction, and some charge nothing at all. Published fee schedules show how much this varies between issuers. One large building society, for example, charges 2.5% of the transaction amount, with a minimum of £3, on several of its credit cards, and 2.99% on its debit cards.
| Fee | Typical cost | Charged by |
|---|---|---|
| Non-sterling transaction fee | Often 1% to 3% of the purchase | Your card issuer |
| Card scheme fee | Less than 1% | Visa or Mastercard |
| Foreign cash withdrawal fee | Examples include 2.5% to 3%, sometimes with a minimum charge | Your card issuer |
On £1,500 of overseas spending, a 2.75% fee adds just over £41, which is often more than people expect.
Does the Fee Apply to Purchases Made in the UK?
Yes. The fee follows the currency of the transaction, not your location. Buy something online from a retailer that charges in dollars or euros while sitting at home, and a non-sterling fee can still be added. Foreign transaction fees can also apply when a payment is processed through a foreign bank, so you do not need to be abroad to incur one.
What Happens When You Use a Credit Card at a Cash Machine Abroad?
Cash withdrawals are the most expensive way to use a credit card abroad, for two reasons.
First, there is the fee. One issuer, for example, charges a 3% cash fee on foreign withdrawals with a minimum charge of £3, on top of its non-sterling transaction fee. The same fee applies to cash-like transactions such as buying foreign currency on the card.
Second, there is the interest. With purchases, paying the balance in full by the due date means no interest. Cash advances are different: interest can be added even when you clear the balance, and there is no interest-free period on cash withdrawals. Combined with the fees, this makes the credit card cash machine one of the costliest ways to get money abroad.
Issuers also set daily cash withdrawal limits, which cap what you can take out in a day regardless of your credit limit.
What Is Dynamic Currency Conversion?
Dynamic currency conversion, or DCC, is when a retailer or cash machine offers to convert your bill into pounds sterling at the till rather than billing you in the local currency. It is presented as a convenience, because you see a familiar number before you pay.
It usually costs more. When you choose to pay in pounds, the retailer or the cash machine owner does the conversion and may add its own charges, and the rate is often worse than the one your card issuer would have applied. If a card terminal shows two totals, one in the local currency and one in pounds, choosing the local currency is normally the cheaper route.
Handy tip
When a card machine abroad asks whether you want to pay in the local currency or in pounds sterling, choose the local currency. You can decline the conversion and let your own issuer convert the amount at its rate.
How Do Debit Cards, Travel Money and Credit Cards Compare?
Each option mixes cost and protection differently.
- Credit cards usually charge a non-sterling fee, but paying by credit card can give you routes to recover money if something goes wrong with a purchase. A section 75 claim goes to the card provider, and chargeback is a separate process; sending a copy of any complaint to your card provider helps if you later make either claim.
- Debit cards avoid credit interest but still carry currency fees. The 2.99% figure above is a debit card example, and cash machine operators abroad may add charges of their own.
- Prepaid travel money cards are sold as a way to lock in a rate before you go, but they tend to come with high fees and are not worth considering for most trips.
- Cash bought in advance avoids per-purchase card fees but leaves you carrying notes and gives no help if the trip costs more than planned.
Can a Retailer Charge You Extra for Paying by Card?
Not for consumer cards. From 13 January 2018, businesses have not been able to charge customers extra for paying by credit or debit card. If a trader adds a card surcharge, you can complain and ask for the charge to be refunded; if that fails, the Consumer Helpline can advise and may report the matter to Trading Standards. The ban does not apply to business cards.
This covers surcharges the retailer itself adds. It does not stop your own issuer from charging the foreign usage fees described in this article.
What Should You Check on Your Card’s Terms Before You Travel?
Your credit card agreement lists every fee by name, and those names are what appear on your statement. Before travelling, check:
- whether your card charges a non-sterling transaction fee, and at what percentage;
- the cash fee for foreign withdrawals, including any minimum charge;
- how interest is charged on cash advances, and whether any interest-free period applies;
- which exchange rate source the issuer uses;
- daily cash withdrawal limits.
If your card’s fees are high, some issuers offer cards with no foreign transaction fee at all, so comparing before you go is worthwhile.
Two other points are worth bearing in mind. A credit card balance is unsecured debt, which means nothing you own is pledged against it; our guide to secured vs unsecured loans explains what is at stake if repayments become difficult. And the rate a card advertises is not always the rate you are personally offered, which our guide to representative APR explains.
- Representative APR Explained: why the advertised rate can differ from the rate on your own quote, useful when comparing card and loan interest.
- Secured vs Unsecured Loans: where credit card debt sits and what happens when repayments are missed.
What to know
- Non-sterling transaction fees typically run between 1% and 3% of the purchase and apply to foreign currency spending even when you are in the UK.
- Credit card cash withdrawals abroad usually add a cash fee on top, and interest applies with no interest-free period, even if you clear the balance.
- Dynamic currency conversion, where a retailer bills you in pounds at the till, generally costs more than paying in the local currency.
- Since 13 January 2018, UK businesses cannot add a surcharge for consumer card payments, though your own issuer’s foreign usage fees still apply.
- Check your card agreement for fee names, percentages, cash charges and daily withdrawal limits before you travel.
Your questions
Do foreign transaction fees apply to online purchases made from the UK?
They can. The fee follows the currency of the payment or the bank processing it, so buying in dollars or euros from home can still trigger a non-sterling charge.
Is it cheaper to pay in the local currency or in pounds abroad?
Paying in the local currency is normally cheaper. If you choose pounds, the retailer or cash machine operator converts the amount and may add its own charges at a worse rate.
Can a shop charge me extra for using a credit card?
No. From 13 January 2018, traders have not been able to add a surcharge for card payments on consumer cards, and you can ask for any such charge to be refunded.
Do I pay interest on credit card cash withdrawals if I repay in full?
Interest can still be added to cash advances even when you clear the balance, because cash withdrawals do not get an interest-free period.
This guide explains how UK borrowing works in general terms and isn’t financial advice. Rates, rules and lender criteria change, so check the details with the lender, GOV.UK or the Financial Conduct Authority before you decide. For advice on your own circumstances, speak to an FCA-authorised mortgage or financial adviser. If you borrow against your home, it may be repossessed if you do not keep up repayments.
