How Canadians can avoid Foreign Exchange Transaction Fees When Travelling

You might not even know it, but your vacation budget is being nibbled at by a needless fee.

Known as a foreign exchange transaction fee, this fee can add 2.5% to the cost of items that you buy in a foreign currency on your credit card – representing hundreds of dollars in extra costs when you travel abroad. You don’t even see this fee broken out as a separate line item on your monthly bill – the charge is included in the Canadian fund amount that you pay as a typical purchase. Most people likely assume that they just received a bad conversion rate, not that they had an extra fee charged.

The real cost of foreign exchange transaction fees (in dollars and cents)

Two and a half percent. That might not sound like a lot, but the impact of that small fee can be surprising.

According to Statista, the average Canadian travel budget was $8,500 in 2016. That might seem high, but if you figure about $200 per person per day in costs for a family of four (food, activities, hotel, etc.), that works out to a bit over 10 days of vacation.

So, what’s that add up to? If you spent all of that money in foreign currency on a credit card, the foreign exchange transaction fee could cost you $212.50. That could have meant a full day of extra travel, or some extra money to splurge while you were on the trip.

That’s not all. What happens if you didn’t plan for this expense in your vacation budget?

A 2.5% difference in your bill doesn’t seem like much at all, but if it means you need to carry a balance on your credit card or struggle pay the bill, then the impact of that fee can be significantly higher than it might look on the surface.

What you can do to avoid the foreign exchange transaction fee on your credit card

If you have a choice of paying a fee versus avoiding a fee, most people will definitely lean towards avoiding it, especially if it impacts what they can spend on their vacation.

Here are your best options for avoiding foreign exchange transaction fees without sacrificing any of your vacation fun:

  • Get a card with no foreign exchange transaction fee

One of the easiest and most effective ways to avoid any foreign exchange transaction fees is to get a card that doesn’t charge them.

There are a few options for no foreign transaction fee credit cards. Cards like these can be an excellent travel tool if you plan on spending a large amount of money in a foreign currency.

Another option is to use a credit card that has a reward rate higher than the fee you’ll be charged. There are some credit cards in Canada that can earn you a benefit higher than 2.5% on some of your travel spending – we added them on our list of the best travel credit cards in Canada for 2018. This option can be worth exploring as well – many travel cards offer benefits that can be very useful in the right circumstances.

  • Get a foreign currency credit card

If the option is available, getting a credit card in the foreign currency can help you avoid the exchange fees entirely. This arrangement can be especially advantageous if you have a bank account in that currency as well, so you can pay the credit card bill off without ever needing to exchange funds.

Unfortunately, in Canada, the majority of cards denominated in a foreign currency are US dollar credit cards. While many Canadians travel to the US, it isn’t their sole destination and it can be quite limiting. One of the exceptions to this is the CIBC Air Canada AC conversion Visa Prepaid Card, which lets you hold a balance in multiple foreign currencies.

  • Save money in a foreign currency

If you have a source of foreign currency, you can always save that money up before a trip. In Canada, many financial institutions offer US dollar accounts, but unfortunately the opportunities for bank accounts in other foreign currencies are limited.

Saving foreign currency for your trip can be a good option as you avoid currency exchange fees and rates while travelling. You also avoid any payment complications while travelling. However, you lose out on any of the benefits and reward features a credit card may offer. Not to mention, by opting for cash, you miss out on credit card security features and put yourself at greater risk of losing your money or theft.

Cutting fees can stretch your budget

Summertime, and summer vacation, hardly feels long enough as it is. By taking steps to eliminate any foreign exchange transaction fees, you can stretch your vacation just a little bit further without blowing your budget.

Enjoy!

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Writer: RateHub

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