Currency Conversion Demystified: How Travel Credit Cards Handle Foreign Transactions

Given the ease of making overseas purchases, foreign currency transactions are becoming more common. It's crucial to understand these transactions and their fees to avoid surprises on your final bill.

Foreign transactions occur when you use your credit card for purchases in a currency different from your country's. In Canada, this happens if you make purchases in currencies other than Canadian dollars (CAD). Online purchases from a US company charging US dollars (USD) are considered foreign transactions.

Credit card issuers add a foreign transaction fee on purchases made in a foreign currency. This fee, usually around 2.5%, is on top of the exchange rate. For instance, a $100 Canadian purchase would incur an additional $2.50. Some cards may charge between 1% and 3%. Using a credit card at a foreign ATM may also incur extra fees.

Exchange rates determine how much one currency is worth in another. Currency conversion automatically happens during transactions, based on the daily exchange rate. This rate fluctuates, affecting the final transaction value.

To minimize fees, consider using multiple credit cards while traveling. Some Canadian cards do not have foreign transaction fees but may charge an annual fee. Credit cards also offer purchase protection and dispute resolution for problematic charges. Always choose to pay in the local currency to benefit from better exchange rates set by the payment processor, not the retailer.