Everything You Should Know About Your Credit Card Foreign Transaction Fees

Cardholders often come across attractive offers allowing them to earn reward points or cashback at accelerated rates every time they use their credit card overseas but neglect the foreign transaction fees that go with it. Chances are cardholders would have paid foreign transaction fees in the past without even realising it. Below is a guide explaining what this fee is and when it applies.

Overview of Foreign Transaction Fees

You should learn about Credit Card to know better on the fee and charges on them and it is applicable on all transactions made overseas either when the payment is processed by a foreign bank or when an item or service is purchased in any currency apart from Singaporean Dollars (SGD). Transactions made in US Dollars (USD) are converted into Singaporean Dollars and those transactions made in any other currency is first converted into USD and then into SGD. an applicable exchange rate applies on all conversions and the foreign currency transaction fee is charged after the conversions.

The foreign currency fee also known as FX fee charged during such transactions generally range around 2.5% of the converted Singaporean Dollar amount. This fee is made up of two components. The first component is an administrative fee charged by the credit card issuer such as Standard Chartered or Citibank. The second component is a fee charged by the credit card network such as Visa or MasterCard. The fee charged by credit card networks is usually 1% of the converted SGD amount.

The fee is not generally advertised unless the credit card offers lower fees than the others. Certain credit card issuers absolve their own fee to give cardholders lower FX fees. The below example will illustrate how the FX fee works.

Let us assume David is a cardholder who travels to Belgium for a vacation. Using his Citi PremierMiles Visa card, David pays S$100 on a meal. The FX fee charged on this transaction is 1% imposed by the credit card network Visa amounts to 100 * 0.01 which is S$1 and the 1.5% imposed by the credit card issuer Citibank amounting to 100 * 0.015 which is S$1.5. Therefore the total that David would end paying is S$100 + S$1 + S$1.5= S$102.5.

While being charged with the FX fee, one should remember that when converting the transaction into Singaporean Dollars, the applicable exchange rate applies. USD10 is not the same as S$10. Foreign exchange rates are calculated by both, Visa and MasterCard and the FX fee is charged after conversion of the transaction.

What qualifies a transaction as a foreign transaction is a bit of a tricky question. Earlier, any transaction made on foreign soil were considered as foreign transactions but now requires only a foreign bank to be involved in any part of the process. This means certain transactions made online in Singapore can be treated as a foreign transaction. Certain websites even present the final number in Singaporean Dollars but the transaction will still be counted as a foreign transaction.

An FX fee also does not provide you with rewards. Using David’s example, his credit card would offer him a 2% cashback on the actual lunch amount which is S$100, not on the total amount he paid is S$102.5. FX fees do not contribute towards any rewards but actually eat into them.

How to Find the FX Fee on a Credit Card

Most banks do not advertise the FX fee unless it is lesser than what other banks have to offer. Certain credit cards designed for travellers appeal to prospective customers by lowered FX fees. Cards like the CIMB Visa Signature card or the HSBC Advance Visa Platinum card charge absolve their fee and only charge around 1% of the FX fee, meaning only the charge imposed by credit card networks such as Visa or MasterCard. Cardholders can find more information on the FX fee in the terms and conditions section of the credit card or find it under ‘Fees and Charges’ section along with other fees such as Cash Advance fee or late payment fee.

Dynamic Currency Conversion

Sometimes, when shopping abroad, merchants offer cardholders a choice of paying in Singaporean Dollars rather than the local currency through a process called Dynamic Currency Conversion (DCC). While the prospect of paying in SGD may sound convenient, it is advisable to opt for local currency transactions. The reason being the exchange rates are set very high. The merchant gets to set the exchange rate manually in this process and hence go in for higher rates to earn more profits. Opting to pay in local currencies means that the credit card network is in charge of handling the transaction which gives the cardholder the standard exchange rate. Another drawback of using the DCC is that cardholders feel they won’t be charged an FX fee for a transaction made in Singaporean Dollars but this is not the case. If the transaction at some point goes through a foreign bank, it is counted as a foreign transaction and an FX fee will be charged. Even if the card does not charge an FX fee, the higher exchange rates applied in DCC could cost you more than the 2.5% FX fee. Cardholders do have a choice when it comes to rejecting DCC. They can choose to turn down a DCC offer and opt for local currencies. If the merchant has already provided a receipt in SGD, ask them to convert the transaction to one in a local currency and check if the receipt is expressed in local currency before signing it. If the merchant offers a choice between SGD and the local currency, cardholders should opt for local currency.

Cardholders should keep in mind that an FX fee is charged on foreign transactions while purchasing goods or services abroad and while the card itself may offer great reward points, AirMiles or cashback on overseas use, the FX fee can quickly diminish the value of these rewards. The bigger the transaction amount, the bigger the FX fee will be. Cardholders should also be wary of Dynamic Currency Conversion as merchants tend to charge higher conversion rates and at times, even though DCC was used, an FX fee may be still be charged.