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Photograph ©2016 by Brian Cohen.

Stupid Tip of the Day: A Simple — But Risky — Way to Avoid Foreign Transaction Fees

F oreign transaction fees can be a potential scourge when traveling internationally. Typically, you are charged an average of three percent per transaction when using certain credit cards outside of your home country when paying for goods and services using a different currency.

One way to avoid foreign transaction fees is to apply for a credit card in which there are no fees for transactions charged with one currency but paid for with another — but those credit cards usually charge some sort of an annual fee. Simple math dictates that — ceteris paribus — if the annual fee of a credit card is less expensive than the total amount which you would have been charged foreign transaction fees for the year, then you come out ahead financially despite paying that annual fee.

For example: if the annual fee of a credit card is $95.00 per year but potential foreign transaction fees would have cost you $300.00 for the year, then you should consider applying for and using that credit card whenever you travel internationally — especially if it includes some outstanding benefits of which you can take advantage…

A Simple — But Risky — Way to Avoid Foreign Transaction Fees

…but what if credit cards which charge annual fees do not work out for you for some reason — and yet you still want to avoid foreign transaction fees as much as possible?

The answer could be to pay for as much of your travel in advance as possible.

But Brian — you might be thinking — have you not said in the past that you would rather not pay for travel expenses in advance?

Yes, I have said that multiple times and still believe that; but there have been times where I have taken advantage of sales where the savings were too good to pass up — good enough to the point where paying a fee to change those plans would still be worth doing, if that were necessary…

…but what I had not realized is that when I pay for my travel in advance with a credit card, I not only usually avoid paying foreign transaction fees because the transaction occurred in United States dollars; but I also significantly reduce the possibility of encountering the nefarious practice of dynamic currency conversion had I waited until I paid for goods or services while I was traveling.

I rented a car in advance for use on a different continent as an example using a credit card which does not cover foreign transaction fees; and I intend to write an article in the future relating my experience.

Two Reasons Why Paying for Goods and Services In Advance is Risky

Virtually every time I have seen very good sale prices on products or services which must be paid in advance, there is the caveat that the rate paid cannot be refunded for any reason. Sometimes no changes are permitted to be implemented, depending on the restrictions; and if changes are allowed, they are usually accompanied by a hefty fee — such as with restricted airfares. Advance reservations for hotel rooms cannot be canceled; and if you do not show up, the entire amount you paid for the room for that night is forfeited.

Also, when you pay in advance, you lose the ability to earn interest on your money — as well as the flexibility to use it until you arrive to use that product or service. Sure, spending $50.00 three weeks in advance has a minimal effect; but how much are you losing — and how much is the merchant profiting — if you paid $5,000.00 one year in advance? If you were able to procure an account where you could earn five percent annual percentage rate on that money — assuming that it is not compounded — you could potentially be losing $250.00. A discount of $750.00 on a product or service would be worth that “loss”; but you would be losing $155.00 on a discount of $95.00 for goods or services on which you paid in advance. This is the main reason why restricted advance purchase rates and pricing are discounted: this is sort of a way of “paying” you for the opportunity to have the use of your money for a longer period of time, which can be invested elsewhere by the company to which you paid.

Of course, the aforementioned examples use simple math and does not account for other potential factors which can greatly vary and alter those numbers.


You could always offset the inflexibility of advance purchase rates and prices by purchasing travel insurance of some type — but unless it is required; and unless you are using a credit card or some other financial instrument which includes travel insurance, you are using at least some of the money you save on a glorified gamble.

This is one reason why there is so much ballyhoo lately over the Chase Sapphire Reserve credit card — not to mention the flagrant hawking of affiliate links in the hopes of profiting from your application for one: the $450.00 required for the annual fee of that credit card covers foreign transaction fees; includes several different types of travel insurance; and has other benefits which initially seem to lead one to believe that paying $450.00 per year is worth all of the benefits of that credit card.

I am tempted to see if that is actually true. If I do some research to ascertain whether or not that is indeed true, then I will cover that in a future article…

…but the point is that there are different ways to save money; and some of those ways are not as obvious as others — as for some people, paying foreign transaction fees on their credit cards when traveling may actually remain a better deal financially if they know how to save on them rather than plunking down annual fees and possible other expenses for credit cards which may not be as great as they initially sound.

Paying for travel items in advance — such as reservations for hotel rooms and restricted airfares — is clearly not the solution for everyone in terms of avoiding foreign transaction fees and is indeed quite risky; but this strategy does generally work for people who know that changes in their travel schedule are highly unlikely…

…and if you are a member of a frequent travel loyalty program who has already earned elite level status, entities will usually work with you in the event where you are unable to show up to that hotel room after all for that night, as an example…

Photograph ©2016 by Brian Cohen.

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