What happens when you use a credit card abroad

When you swipe a credit card in another country, your card issuer converts the foreign currency to US dollars and adds the charge to your bill. The conversion happens at a rate set by Visa, Mastercard, or American Express—not by your bank, though your bank may add its own fee on top. You will see both the original foreign amount and the US dollar equivalent on your statement.

Most cards charge a foreign transaction fee of 1% to 3% of the purchase amount. Some cards charge nothing. The fee appears as a separate line item on your bill, labeled as a foreign transaction fee, international fee, or currency conversion fee. A $100 purchase abroad with a 2% fee costs you $102.

ATM withdrawals abroad work the same way—your bank converts the local currency and charges a fee—but ATM fees are often higher than purchase fees and may include an additional charge from the foreign bank that owns the machine.

Key Takeaways

  • Foreign transaction fees range from 0% to 3% and appear as a separate charge on your statement, not hidden in the exchange rate.
  • The exchange rate itself is set by your card network (Visa, Mastercard, or Amex), not your bank, though your bank may add a markup.
  • ATM withdrawals abroad typically cost more than purchases because both your bank and the foreign bank may charge fees.
  • Cards with no foreign transaction fee exist and are worth using if you travel internationally more than once a year.
  • Notifying your card issuer before travel is not required for most modern cards but can prevent fraud blocks that interrupt your trip.

How the exchange rate is calculated

The exchange rate applied to your purchase is the wholesale rate—the rate banks use to trade currencies with each other—plus a small markup. Visa and Mastercard publish their rates daily. Your bank cannot offer you a better rate than the wholesale rate, but it can add a percentage on top, which is called a currency conversion fee or exchange markup.

This is separate from the foreign transaction fee. A purchase might be hit with both: the currency conversion (built into the exchange rate) and a flat 2% foreign transaction fee. Some cards disclose the markup; others do not. If your card issuer's website does not state the markup, call and ask what percentage above the wholesale rate they charge.

You cannot negotiate the rate or the fee at the point of sale. The merchant cannot change it. The rate is locked in when the transaction is processed, which may be one to three days after you make the purchase.

Cards with no foreign transaction fees

A growing number of credit cards charge 0% foreign transaction fees. These cards still use the wholesale exchange rate (plus any markup your bank adds), but they do not add the 1% to 3% fee on top. They are most useful if you travel internationally at least once a year or make regular purchases from foreign websites.

Cards with no foreign transaction fees are offered by most major issuers—Chase, American Express, Bank of America, Citi, and others. Some are premium cards with annual fees; others have no annual fee. The trade-off is usually that a no-fee card may have a lower cash-back rate on everyday purchases or fewer other benefits. Compare the annual fee, the cash-back rate, and the foreign transaction fee together to see whether the card saves you money over a year.

If you already have a card with a foreign transaction fee and you are planning a trip, you do not need to switch cards when ready. Use the no-fee card for large purchases abroad and your existing card for small ones if you have both.

What to do before traveling internationally

Notify your card issuer that you will be traveling and provide the dates and countries. This step is optional for most cards issued in the last five years—fraud detection systems are now sophisticated enough to recognize legitimate travel—but it can prevent your card from being declined if a purchase looks unusual to the issuer's system.

Check your card's foreign transaction fee and daily withdrawal limits. Many cards have a daily ATM limit of $500 to $1,000, which may not be enough if you need cash for several days. You can usually request a temporary increase by calling your issuer a few days before you leave.

Bring a backup card from a different issuer. If one card is lost, stolen, or declined, you will have another way to pay. Keep the backup card in a separate location from your primary card.

ATM withdrawals and cash advances abroad

Withdrawing cash from an ATM abroad costs more than making a purchase. Your bank charges a foreign transaction fee (usually 1% to 3%), and the foreign bank that owns the ATM may charge an additional fee of $2 to $5. Some ATMs also charge a fee on the foreign bank's side, which you see on the screen before you confirm the withdrawal.

A cash advance is different from an ATM withdrawal. A cash advance is a loan against your credit limit, and it usually carries a higher fee (3% to 5%) plus interest that starts accruing when ready, even if you normally have a grace period on purchases. Avoid cash advances unless you have no other option.

To minimize ATM fees, withdraw larger amounts less often rather than small amounts multiple times. A $500 withdrawal with a $5 ATM fee and a 2% foreign transaction fee costs about $15 total. Five $100 withdrawals with the same fees cost about $25. Use ATMs inside banks rather than standalone machines in tourist areas, which often charge higher fees.

Disputing foreign charges and fraud

If you see a foreign charge on your statement that you did not make, report it to your card issuer as soon as you notice it. Most issuers have a fraud department that can be reached by phone or through your online account. You will need to describe the charge, the date, and the merchant.

Your issuer will investigate and typically issue a temporary credit within a few days while the investigation continues. The investigation usually takes 30 to 60 days. If the issuer determines the charge was fraudulent, the credit becomes permanent and you owe nothing. If the issuer determines you authorized the charge, the credit is reversed and you owe the amount.

Disputed charges do not affect your credit score while the investigation is open. Keep records of your receipts and any communication with the merchant in case you need to provide evidence to your issuer.

Dynamic currency conversion and what to avoid

Dynamic currency conversion is an option some merchants offer at the point of sale. The merchant's terminal asks whether you want to pay in US dollars or the local currency. If you choose US dollars, the merchant converts the amount for you using their own exchange rate, which is almost always worse than the rate your card issuer would use.

Always choose to pay in the local currency. Your card issuer will convert it at a better rate than the merchant can offer. The merchant benefits from dynamic currency conversion, not you.

Similarly, some ATMs offer to convert the withdrawal amount to US dollars on the spot. Decline this offer and let your card issuer handle the conversion instead.

Frequently Asked Questions

Do I have to notify my bank before traveling internationally?

No, but it can help. Modern fraud detection systems recognize legitimate travel patterns, so most cards will not be declined. Notifying your issuer takes two minutes and eliminates the small risk that a purchase will be blocked. Call the number on the back of your card or use your online account.

What is the difference between a foreign transaction fee and an exchange rate markup?

A foreign transaction fee is a flat percentage (usually 1% to 3%) that your issuer charges on top of the exchange rate. An exchange rate markup is a percentage your issuer adds to the wholesale rate when converting the currency. You can be charged both on the same transaction. A card with 0% foreign transaction fees may still have a markup built into the exchange rate.

Can I use my credit card to withdraw cash at an ATM abroad?

Yes, but it costs more than making a purchase. You will pay a foreign transaction fee (1% to 3%), an ATM fee from the foreign bank ($2 to $5), and interest on the cash advance if your card treats ATM withdrawals as cash advances rather than regular purchases. Check your card's terms to see how ATM withdrawals are treated.

What should I do if a foreign charge is fraudulent?

Call your card issuer's fraud department or report it through your online account. Provide the date, amount, and merchant name. Your issuer will issue a temporary credit while investigating, which usually takes 30 to 60 days. Keep your receipts and any communication with the merchant as evidence.

Is it better to pay in US dollars or local currency when a merchant offers both?

Always pay in the local currency. Merchants who offer to convert to US dollars use their own exchange rate, which includes a markup that benefits them, not you. Your card issuer's rate is better. The only exception is if the merchant's rate is clearly displayed and you have compared it to your issuer's rate beforehand, which is rare.