What is a Foreign Transaction Fees and How is it Charged?

What is a Foreign Transaction Fee (FTE)?

A foreign transaction fee (FTE) is a charge levied by credit card companies when a customer makes a purchase in a foreign currency or through a foreign bank. These fees are usually a percentage of the total purchase, typically ranging from 1% to 3%.

These charges apply to both physical and online international payments and vary depending on your card provider.

Read More: How to Accept International Payments with Razorpay?

How Foreign Transaction Fees Work?

1. Currency Conversion

• When you make a foreign transaction, your credit card company first converts the foreign currency amount to your home currency.
• The payment processor handles this conversion before settling the transaction with your bank, the foreign transaction fee is applied accordingly.
• The total amount, including the foreign transaction fee, is reflected on your credit card statement.

2. Foreign Transaction Fees Calculation

• Foreign transaction fees are typically calculated as a percentage of the total purchase amount, usually ranging from 1% to 3%.
• Some banks may also impose a flat fee in addition to the percentage. The specific FTE depends on your card provider and the type of card you use.

3. Dynamic Currency Conversion

• Dynamic Currency Conversion (DCC) allows you to pay in your home currency instead of the foreign one.
• While this might seem convenient, the foreign transaction fee and exchange rate applied through DCC are often higher, making it less cost-effective compared to letting your card issuer handle the conversion.

4. Additional Charges

• Alongside the foreign transaction fee, you may encounter other charges on international transactions.
• These can include currency exchange fees when using payment gateway in India or withdrawing cash from foreign ATMs.
• ATM withdrawals abroad can also incur additional service charges from both local banks and your card issuer, adding to your overall expenses.

Related Read: ATM Withdrawal Limit for 2024

How Much is a Foreign Transaction Fee?

Foreign transaction fees typically range from 1% to 3% of the total transaction amount. Your credit card issuer or bank charges this fee for every transaction made in a foreign currency.

Foreign Transaction Fees for Different Credit Card Issuers in India

Here’s is the list of credit card companies and their foreign transaction fees

How to Calculate Foreign Transaction Fees? A Step-by-Step Guide

STEP 1: Identify the Purchase Amount

Start with the original amount of the transaction in the foreign currency.

STEP 2: Apply the Foreign Transaction Fee

Multiply the purchase amount by the FTE percentage your card issuer charges.

STEP 3: Add Currency Conversion Fees

If your bank charges currency conversion fees separately, include them in the total cost.

Example of Foreign Transaction Fee

Scenario: Imagine you’re traveling to Paris and buy a designer handbag for €500 using your any Indian bank credit card.

Base Transaction Amount: €500

Exchange Rate: 1 Euro = ₹90

Foreign Transaction Fee: Your Indian bank charges a 2.5% FTE.

Calculation:

Purchase Amount in Rupees: €500 × ₹90 = ₹45,000
Foreign Transaction Fee: ₹45,000 × 2.5% = ₹1,125
Total Cost: ₹45,000 + ₹1,125 = ₹46,125

Your total cost, including the foreign transaction fee, is ₹46,125.

What Types of Transactions Have Foreign Transaction Fees?

1. In-Person Purchases Abroad

Using your card for retail transactions such as dining, shopping, or hotel stays in a foreign country will typically incur FTE.

2. Online Purchases from International Vendors

Any transaction made in a foreign currency from international e-commerce sites or services billed by foreign companies, even if you’re in India, may result in FTE.

3. Cash Withdrawals from Foreign ATMs

Withdrawing cash from ATMs abroad can lead to FTEs along with additional charges, such as ATM or currency conversion fees.

4. POS Transactions

POS transactions made in India at POS terminals that is linked to overseas accounts also attract foreign transaction fees.

5.  International Travel

Booking or paying for services with international companies, including tickets from non-Indian airlines, incurs foreign transaction fees.

6.  Digital Wallet Payments

Payments made through digital wallets in a foreign currency are subject to foreign transaction fees.

Tip: Avoid dynamic currency conversion at points of sale (POS) system, where merchants offer to charge you in Indian Rupees instead of the local currency. This often involves less favorable exchange rates and can increase your total cost. To minimize these charges, use credit cards that don’t have FTEs and always select the local currency when making payments abroad.

Tips for Minimising Foreign Transaction Fees

1. Travel Cards

Opt for travel credit or debit cards designed for international use to benefit from lower or no foreign transaction fees. These cards often offer global acceptance, enhanced security, and perks like rewards and travel insurance.

3. Currency Exchange

To get the best rates and avoid high fees, exchange currency before traveling at banks or authorized exchange centres. Avoid airport and hotel exchanges, which typically have higher costs.

4. Avoiding Foreign Currency Conversion

• Pay in Local Currency: Always choose to pay in the local currency to avoid unfavorable exchange rates from dynamic currency conversion.
• Avoid Dynamic Currency Conversion: This option often results in higher fees and poor exchange rates.
• Avoid Airport Exchange Rates: Currency exchange at airports generally comes with less favourable rates and higher fees.

5. Using ATMs Abroad

• Use Local ATMs: Withdraw cash from local ATMs to reduce fees compared to using foreign ATMs.
• Make Few ATM Withdrawals: Limit the number of withdrawals to minimize additional costs.

6. Managing Currency

• Open a Multi-Currency Account: Consider a multi-currency account to manage and reduce foreign transaction fees.
• Ask Your Bank About Foreign Partners: Inquire if your bank has partnerships with international banks for lower fees or better exchange rates.
• Avoid Traveler’s Checks: These often incur higher fees and less favourable rates compared to other payment methods.

7. Negotiating Fees

Frequent travellers or businesses should negotiate with their bank or credit card issuer for reduced or waived foreign transaction fees.

FAQs

1. Do debit cards come with high foreign transaction fees?

Debit cards in India can have FTEs similar to those of credit cards, but the fees vary by issuer.  Check with your bank for specific charges.

2. Can you get a refund on foreign transaction fees?

Refunds on FTEs are rare but possible in cases of fraud or disputes. Contact your bank to discuss your options, though most fees are non-refundable.

3. Can you use your credit card overseas?

You can safely use your credit card for purchases and withdrawals while travelling abroad. Credit cards are widely accepted globally, making them a convenient transaction option. But before travelling abroad, it is advisable to notify your bank or card issuer about your travel plans. This helps avoid any potential issues with transactions.

4. What is the foreign transaction fee in India?

In India, foreign transaction fees usually range from 1% to 3%. These fees vary by bank and card type.

5. What are the benefits of using a travel credit card for international transactions?

Travel credit cards offer no foreign transaction fees, better exchange rates, and perks like reward points, fraud protection, 24/7 emergency assistance and travel insurance, making them ideal for international use.