Your Best Credit Cards
Canada’s Best No Foreign Transaction Fee Credits Cards in 2018
After returning home from a trip abroad or shopping online with international merchants, many Canadians are surprised to see a 2.5 per cent foreign transaction fee on their credit card statement for each purchase. The credit card company provides notice of this fee in their credit card agreement, but not everyone reads these agreements carefully, or at all.
Is there a credit card for travel and online purchases in foreign countries that doesn’t charge a foreign transaction fee?
There is one credit card featured on RateSupermarket.ca that stands apart from the rest by offering a full suite of generous rewards and benefits and no foreign transaction fee: It’s the Scotiabank Passport® Visa Infinite credit card.
Another credit card that does not charge the foreign transaction fee is the Home Trust Preferred Visa. It doesn’t offer as many rewards and benefits as the Scotiabank Passport® Visa Infinite* Card, but it does not charge an annual fee. With this credit card, you’ll get one per cent cashback on all your purchases, no restrictions on where you earn your reward points, free roadside assistance, auto rental collision/loss damage Insurance and more.
Another option that works for everyone, but especially those with a bad credit score, is the CIBC Air Canada® AC conversion™ Visa* Prepaid Card . It’s not a credit card, but it’s a safe and convenient way to hold foreign currency for your transactions. You can load the card with up to 10 different foreign currencies for use in 45 countries.
What is a foreign transaction fee?
According to the Financial Consumer Agency of Canada, when you pay for something with a credit card outside of Canada, whether it’s a good or service, in person or online, your financial institution (the credit card issuer), will apply two charges. One is the actual currency exchange rate on the day the transaction is processed and the other is a fee for administration costs related to handling the foreign transaction.
How much does a credit card issuer charge for a foreign transaction fee?
The foreign transaction fee charged on a consumer card is usually between 2.5 to 3 percent of each foreign transaction amount converted to Canadian currency (for Canadian credit cards). Credit card companies will shorten the story to say that the fee covers the foreign exchange and administrative costs of managing a transaction or currency conversion. But there’s more to it than that. Here’s a brief look at a somewhat complicated system of payments.
To begin, you don’t really have a credit card directly from Visa or Mastercard, which are actually widely accepted payment systems, not actual credit cards. It’s your financial institution that checks your credit score, issues you credit and administers your account. So, it is the card issuer (your financial institution) that assigns the foreign transaction fee to your credit card account, not Visa or Mastercard, even though they both indirectly play a role in these fees.
In fact, Visa and Mastercard charge the merchant’s financial institution international assessment fees and these fees are passed on to the merchant.
In a domestic transaction, if you make a purchase of $100, the merchant receives a few dollars less, which is known as a merchant discount rate. Your card issuer (financial institution) actually pays the merchant’s financial institution a little less than what the merchant receives to accommodate something called an interchange rate charge by Visa and Mastercard. The difference between the amount paid to the merchant and the amount paid by the card issuer to the merchant’s bank is shared between all three parties. When the transaction is foreign, Visa and Mastercard add international assessment fees.
How does Visa apply foreign transaction fees?
The fees that Visa charges for foreign transactions are applied as follows:
After you make a foreign purchase, the merchant’s financial institution is charged both an International Service Assessment (ISA) fee and a Visa International Acquirer Fee (IAF). Your card issuer (financial institution) authorizes the transaction and is also charged assessment fees by Visa and these are passed on to you. You will see this on your Visa credit card statement as an International Transaction (TXN) fee and it is separate from any applicable currency exchange fee for the transaction.
The ISA fee applied to foreign transactions that require currency conversion is higher than purchases that do not require a currency conversion. For the former, the fee is 1.20 per cent of the transaction and for the latter, it’s .80 per cent.
How does Mastercard apply foreign transaction fees?
Mastercard charges financial institutions in the same way by charging the merchant’s financial institution and the cardholder’s financial institution. The fees vary according to country and type of merchant.
At this time, Mastercard charges the cardholder’s financial institution a currency conversion assessment of 0.20 per cent of the transaction for the currency conversion and a cross-border assessment of .90 per cent of the transaction on all cross-border transactions, whether or not there is a currency conversion.
Unlike Visa, the fee appears on statements as a cross-border TXN, not International TXN.
How is the foreign transaction fee applied by financial institutions?
Some financial institutions convert foreign amounts to U.S. dollars and then Canadian dollars, adding a foreign currency conversion after the amount is converted to Canadian dollars. Others convert foreign currency into Canadian.
Here’s an example of a foreign currency transaction, courtesy of the Financial Consumer Agency of Canada:
Suppose you made a €1,000 purchase with your credit card. The exchange rate is 1.42 to convert euros directly to Canadian dollars. Your credit card agreement shows a conversion charge of 2.5%.
After your financial institution converts your €1,000 purchase to Canadian dollars, it will cost $1,420. The 2.5% foreign currency conversion charge is applied to the $1,420 for a fee of $35.50. The total amount of your purchase is $1,455.50 in Canadian dollars.
How is the foreign transaction fee applied to foreign cash advances?
A cash advance made out of the country is usually higher than it is in Canada. A foreign currency conversion charge may also apply to a foreign cash advance. Like all cash advances, you will be charged interest from the day you take the cash advance until you repay the amount in full.
Why isn’t my refund the same amount as my purchase out of the country?
Currency rates change on daily basis. If you return something you bought with foreign currency, the refund may be less than your original purchase amount.
Why should I get a no foreign transaction fee credit card?
If you travel frequently, or make a lot of purchases online from foreign merchants, you should consider a no foreign transaction fee credit card. The amount you save in foreign transaction fees will probably exceed the annual fee for this type of credit card.
Is a U.S. dollar credit card better than Canadian dollar credit cards with no foreign transaction fee?
Some people use U.S. Dollar Credit Cards to avoid the foreign transaction fee. But all purchases made in U.S. dollars will require you to pay in U.S. funds, of course. This means either converting your Canadian dollars to pay your statement balance, or opening and maintaining a U.S. dollar bank account. Unless you keep a certain amount of U.S. funds in that account, you will be charged account fees. And, again, you will pay an annual fee for your U.S. dollar credit card unless you maintain a certain balance in a U.S. account with the financial institution (For example, TD Canada Trust offers a Borderless Plan that requires a minimum account balance of $3,000 to waive the annual credit card fee and account fee).
Obviously, it’s easier and less costly to get a Canadian Dollar credit card with no foreign transaction fee.
How do I avoid paying foreign currency transaction fees?
There are several ways you can avoid paying foreign currency transaction fees, but all have a cost associated with them. One way of recouping any currency exchange losses is to ensure you have a credit card that offsets the cost, like the Scotiabank Passport® Visa Infinite credit card.
You can also try the following to avoid foreign transaction fees:
- Get a U.S. dollar credit card, although this can be costly in terms of an annual fee or U.S. account fees.
- Use prepaid credit cards in the currency of the country you are visiting, or get a CIBC Air Canada® AC conversion™ Visa* Prepaid Card , which lets you hold up to 10 different currencies on the same card and is accepted in over 45 countries.
- Use American Traveller’s cheques (which have their own fees).
- Pay cash in the currency of the country you are visiting. Exchange your cash at the bank to get the bank rate. Exchanging currency at foreign or airport currency exchange services is more costly.
What is the best no foreign transaction credit card?
Scotiabank Passport® Visa Infinite credit card is the hands-down winner, since it offers so much more than just no foreign transaction fees!
With this card, your travels will be more enjoyable:
- Eat and drink for free in the comfort of a quiet and well appointed airport lounge, up to six times a year from the day you register for this benefit. Imagine how that would feel when an ice storm delays your flight for 12 hours.
- Spend without worrying about extra charges while travelling or shopping online internationally. You will pay only the exchange rate, not the 2.5 – 3 per cent foreign transaction fee charged by other credit cards.
- Spend $1,000 in the first three months after sign up to receive 25,000 extra bonus points, which is a $250 value to use towards your next trip.
There’s so much more to this credit card, including travel benefits and rewards! Check out our full review for all the details on RateSupermarket.ca
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