A foreign transaction fee is applied by your bank whenever a currency conversion is required. For example, if you make a payment online using your UK debit card on a US website, your bank needs to exchange pounds sterling to US dollars to process the payment, so it will charge you a fee for that.
The foreign transaction fee is usually around 3% of the transaction value, which is quite high if you’re making large payments. For example, if you bought something on a US website for £300 and the bank applies a 3% foreign transaction fee, you’d be hit with a £9 fee. This may not seem like much, but if you’re making payments like these every month, it can quickly add up.
What are debit cards with no foreign transaction fees?
You usually receive a debit card when you open a current account, which lets you access your own money to make everyday purchases in-store or online and withdraw your own money from a cashpoint. Some of these debit cards come affiliated with Visa or Mastercard, so you can use them to buy things while travelling without having to pay foreign transaction fees.
What are the benefits of using debit cards with no foreign transaction fees?
Here are some of the benefits you can expect from using a debit card with low foreign transaction fees:
Save money on international purchases made online. Debit card international transaction fees typically vary from 2-3% of the transaction value. If you often buy things from overseas online, a debit card with no foreign transaction fees could lead to significant savings.
Save money when using your card overseas. The same applies when travelling internationally. Debit cards with no foreign transaction fees let you use your card overseas just as you would at home and won’t have to worry about transaction fees. Not only will this save you money, but it will save you the hassle of getting a travel debit card just for your trip.
Global and easy. If you have a Mastercard or Visa debit card, you can use your card in over 200 countries and territories across the world. You can use it at cashpoints and also for online transactions on international websites from within the UK and when you’re travelling.
No overspending and no interest accruing. Unlike a credit card, a debit card only lets you access the cash in your current account. This can help keep your spending in check as you’re only spending what you actually have available in your account.
Keeping it simple. A debit card gives you a simple way to access your own money, no matter where you go. You don’t have to worry about loading foreign currency onto your card, you don’t have to exchange cheques for cash and you don’t have to worry about applying for a credit card.
What fees are normally involved when using a debit card for international purchases?
While using your debit card when overseas gives you quick and easy access to money, it pays to find out just how much you’ll end up paying in other fees and costs:
Foreign transaction fee. This fee is a combination of what your card provider charges along with what the payment processor charges. You have to pay this fee when you use your card to pay in foreign currency, which your card provider converts into pound sterling. It is usually between 2% and 3% of the transaction value.
Overseas cashpoint fees. When using your debit card to withdraw money from an overseas cash machine, the cashpoint owner charges a fee, as does your card provider. You can lower your cashpoint-related costs by withdrawing money from your provider’s international cashpoint partners, withdrawing large sums to reduce your cashpoint visits or switching bank accounts to one which charges no or low international cashpoint fees on its associated debit card.
Foreign exchange rate margin. Banks make money by adding a margin (or a markup) on top of the real exchange rate when transferring one currency into another. Each bank will charge a different margin, so will offer different exchange rates. While this cost is not as transparent, if your bank is offering a poor exchange rate, you could be losing money when using your debit card overseas.
International money transfer fee. If you’d like to send money to someone overseas from your regular bank account in the UK, your bank is likely to charge you a hefty fee, sometimes over £20. To avoid this, opt for a dedicated international money transfer service when sending money to someone overseas rather than using your bank.
What are the pros and cons of using a debit card with low foreign transaction fees?
Pros
Access your own money. Since you’re accessing money from your own bank account, you don’t have to worry about repayments, paying interest or overspending.
Low or no foreign transaction fees. If you’re outside the UK for a considerable length of time and end up using your debit card regularly, low or no foreign transaction fees can lead to noticeable savings.
No transfers required. Since your debit card gives you direct access to money in your bank account, you don’t have to worry about transferring money from your account to another account or card.
No conversion required. Using your debit card to pay in foreign currency is easy and does not require you to carry out complicated calculations. Your card provider does this for you using current exchange rates.
Cons
No access to extra emergency funds. You can only access funds in your bank account, so in an emergency, a credit card could work better.
Limited choice of providers. While a number of UK financial institutions provide debit cards, not many offer debit cards with no foreign transaction fees, so your choices remain limited.
Conditions to meet. There may be account conditions you’re required to meet in order to enjoy no foreign transaction fees.
Bottom line
Foreign transaction fees from spending abroad or buying from foreign websites can be a pain, but it is possible to reduce these fees by choosing the right bank account with the right debit card.
A foreign transaction fee is applied by your bank whenever a currency conversion is required, and these fees can add up to as much as 3% of the transaction value.
By using the right debit cards you can spend your own money overseas and avoid foreign transaction fees, while benefiting from some of the best exchange rates on offer.
Frequently asked questions
Yes, you would. This is because your bank would convert pound sterling to the currency the website charges you.
You would, in all likelihood, have to pay foreign transaction fees in such a case, even if you’re making a payment in pound sterling because this fee applies in instances when the merchant accepting the payment is overseas.
Yes. Both Visa and Mastercard offer overseas debit card replacements.
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