Foreign Transaction Fees In Canada And How To Avoid Them
It costs financial institutions money to convert your foreign currency purchases into CAD so they can lend you the money and charge you interest. To compensate for this added work, banks charge foreign exchange transaction fees (FX fees). The FX fee is usually 2.5% of the purchase amount.
Although 2.5% sounds small, it adds up really fast when you’re travelling abroad and making lots of purchases over the course of your trip. We’ll show you exactly how the fees are charged and things you can do to avoid paying them altogether.
Key Takeaways
- Foreign exchange transaction fees (FX fees) are charges imposed by Canadian financial institutions for transactions in foreign currencies.
- The standard FX fee in Canada is 2.5%.
- Customers can avoid fees by opting for credit cards with no FX fees, exchanging currency before travelling, and using prepaid travel cards.
What are foreign transaction fees?
FX fees are surcharges imposed by financial institutions on transactions involving foreign currencies. These fees are typically 2.5% of the total transaction amount and compensate the financial institution for the additional costs and risks of currency conversion.
In addition to charging flat FX fees, it’s worth noting that financial institutions often use marked-up exchange rates when converting, which further increases the overall cost of foreign transactions.
How much are foreign transaction fees?
The standard foreign transaction fee in Canada is 2.5%. With that said, it’s crucial to read the terms and conditions of your debit or credit card before making purchases abroad to ensure you understand all of the fees you’ll be charged.
Assuming a standard 2.5% fee, you can expect to pay a minimum of $2.50 per $100 spent in Canadian currency.
How to avoid FX fees
While FX fees are commonplace in Canada, they aren’t unavoidable. Consider using the following tips and tricks to avoid FX fees on your next international adventure:
- Get a no-FX-fee credit card, such as the Scotiabank Gold American Express.
- Exchange your Canadian currency for the foreign currency of your choice before leaving the country to secure more favorable rates and avoid ATMs abroad.
- Look into multi-currency bank accounts, such as those offered by Wise.
- Consider using prepaid travel cards.
FAQ
What is a foreign transaction fee?
Banks and financial institutions charge a foreign transaction fee whenever you make a purchase with your card that’s in a different currency. This covers the cost of converting the fee to CAD so you can repay the debt.
Why am I being charged a foreign transaction fee?
It costs financial institutions money to convert currencies in order to lend money and charge interest. So, to compensate for the time and risk involved, banks pass the expense off to the cardholders.
How do I avoid a 3% foreign transaction fee?
Read the terms and conditions carefully to avoid a card that charges a 3% FX fee, since most credit cards usually charge 2.5%. If your card has the higher fee, call your bank and ask them to reduce the fee.
Which Canadian bank has no foreign transaction fee?
Most Canadian banks charge foreign transaction fees unless you get a credit card that specifically doesn’t charge FX fees or is a USD credit card. You can also find prepaid credit cards that don’t charge for foreign transactions.
Does Amex charge foreign exchange fees?
Amex does charge FX fees. First, Amex converts your foreign currency amount into USD. Then, it converts that amount into CAD and adds the FX fee, which appears on your Amex credit card statement.
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