Currency Conversion Demystified: How Travel Credit Cards Handle Foreign Transactions

TORONTO, ON / March 7, 2024 / As overseas purchases and online shopping from foreign merchants become more frequent, understanding the nuances of foreign transactions and associated fees is crucial for credit cardholders in Canada. Foreign transactions involve purchases made with a credit card in a currency other than Canadian dollars (CAD), attracting a standard fee and influenced by daily exchange rates.

In Canada, foreign transaction fees are generally set at 2.5% over the base charge of the purchase amount, translating to an additional $2.50 on every $100 spent internationally. These fees, which vary between 1% and 3%, are in addition to potential ATM usage charges abroad. Understanding exchange rates and opting for credit cards with no foreign transaction fees, albeit potentially with annual fees, can significantly minimize expenditure on international transactions.

Exchange rates factor prominently in currency conversion, impacting how much one Canadian dollar is worth in foreign currencies. Credit card companies facilitate this conversion automatically, using the current day's exchange rate. Cardholders are advised to plan for these financial aspects and consider carrying multiple credit cards to leverage those offering perks like no foreign transaction fees or additional purchase protection. Moreover, opting to pay in the local currency rather than CAD can avoid inflated rates set by retailers.

Being informed about the mechanics of foreign transactions and exchange rates ensures better budgeting and can prevent unexpected charges on travel credit cards.