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The terms “cross currency (CCY) conversion fee” and “foreign transaction fee” are used interchangeably most of the time. They are not, however, the same.
When you use your home currency debit or credit card to make purchases or transactions in a foreign country, the credit card payment processor will charge you a CCY conversion fee. When you make purchases from a foreign merchant, whether online or in the merchant’s home country, the credit card issuer will charge you a foreign transaction fee.
In this article, we’ll go over the CCY conversion fee in greater detail, including how it works and a better alternative.
What is a Conversion Fee for Cross-Country Travel?
When you make a purchase at a foreign merchant’s store and pay with your debit or credit card, the payment is made in the merchant’s home currency. In such cases, the merchant or your debit/credit card processor may charge a CCY conversion fee.
The currency conversion fee is the cost of converting your home currency into the merchant’s home currency. This is usually 1% of the total transaction value. The “foreign currency conversion fee” or “foreign currency exchange fee” is another name for the CCY conversion fee.
You may be asked if you want to convert the purchase amount to your home currency when making a purchase in a foreign store. If you agree, the merchant’s POS will convert the purchase price to your home currency using Dynamic Currency Conversion (DCC).
While this may appear to be a good idea because it allows you to see the cost of your purchase in your home currency right away (rather than waiting for your credit card bill), there is a catch. The DCC may not be a good exchange rate, and there is also a service charge. You could end up paying as much as 12% in transaction fees.
If you decline DCC and pay with a credit card, the currency conversion rate is the rate charged by your card provider, which is usually a good rate. However, it could be hidden in the foreign transaction fee on your credit card statement.
If you refuse DCC, make sure you have a currency conversion app on hand so you can figure out how much your purchase costs in your home currency. If not, the price will only be revealed when you receive your credit card statement.
We strongly advise you to have a currency conversion app on hand, or at the very least, be aware of the current exchange rate. This will enable you to perform a quick mental calculation to determine the cost of your purchase in your home currency.
Credit card companies are required to show the exact amount charged. So, if the statement shows a 3 percent foreign transaction fee, the actual foreign transaction fee is 2 percent, and the currency conversion fee is 1 percent.
DCC is typically much more expensive than using your credit card processor’s currency conversion service.
Should I Turn Down DDC?
To avoid extra charges, it is preferable to decline DDC. Better yet, use a currency converter app to convert the price of your purchase in a foreign store to your home currency so you know how much your purchase will cost in your own currency. Why should you pay the additional DDC fees?
Remember that credit card companies negotiate favorable foreign currency exchange rates on your behalf, ensuring that you get a good conversion rate. This is far superior to relying on DDC.
If at all possible, try to make your purchase in the local currency.
To make purchases in a local currency, you must either have enough local currency or locate a reputable bank’s ATM to obtain a good exchange rate. Make sure you don’t go to the ATM too often because you’ll be charged each time you use it. Make sure you withdraw enough money at once to cover any possible purchases.
What Is a Cross Currency Conversion Fee and How Does It Work?
To comprehend how the CCY conversion fee operates, we must first comprehend the foreign transaction fee. A foreign transaction fee is a fee applied to purchases made with a credit card in a currency other than the card’s home currency.
It is an additional fee added by banks or credit card companies to the CCY conversion fee for international transactions. Although the foreign transaction fee varies, it is typically between 2% and 3% of the transaction value.
For example, if you withdraw $1000 in overseas purchases using your credit or debit card, you will be charged a $30 fee. This is assuming your credit card company charges a 3% foreign transaction fee. This is also true if you use an ATM that charges a transaction fee.
The CCY conversion fee may be hidden in the foreign transaction fee in some cases. A single foreign transaction fee can be created by combining the currency conversion fee and the foreign transaction fee.
However, some credit cards and card companies offer cards that do not charge a foreign transaction fee. You should check with your bank to see if there is a way to avoid paying a foreign transaction fee.
The following are some examples of purchases that are subject to a foreign transaction fee:
- Tickets on a major international airline
- Online shopping on a global platform
- Using ATMs from other countries
How Can I Avoid Having to Pay a Foreign Transaction Fee?
You’re probably wondering how to avoid international transaction fees now that you know what they are. Yes, there are methods for avoiding international transaction fees. They are as follows:
Local Currency Exchange
To avoid international or foreign exchange fees, it is a good idea to exchange currency before traveling. Calculate the expected cost of your trip or purchase ahead of time by exchanging currency at a local bank, if possible. You might be lucky enough to find a bank or credit union that offers a competitive exchange rate, eliminating the need to pay additional exchange rate fees. This advice would not apply if you were traveling to China, which has advanced mobile payment practices and is largely a cashless society. You might be better off using a card like AP-1, which allows QR code payments and direct SGD to RMB conversion at the point of sale (using the funds on your AP-1 virtual card).
Locate Banks That Are Foreign-Friendly
Identifying foreign-friendly banks that do not charge foreign transaction fees is the best way to avoid paying the foreign transaction fee. It’s worth checking with your bank to see if they can provide you with a card that doesn’t charge this fee. You may not be charged a foreign transaction fee if you use certain credit cards.
Avoid using a foreign ATM.
Another way to avoid paying the foreign transaction fee is to make payments in the local currency in a foreign country. However, because there are restrictions on how much currency you can carry in a foreign country, this may not be possible.
A good alternative is to withdraw local currency from a reputable bank’s local ATM and use it to make local payments. Avoid foreign banks as much as possible, and see if your local bank has a joint venture with one. Furthermore, it is preferable to make large transactions all at once rather than multiple transactions.
Obtain a No-Fee Credit Card
Getting a credit card that does not charge international transaction fees is another simple way to avoid paying hefty foreign transaction fees. With these cards, you can shop and conduct transactions without fear of being overcharged.
You could also use a reputable credit card issued by a reputable company, which requires vendors to adhere to proper CCY charges. Also, rather than using DCC, we recommend using a currency conversion app to see how much your purchase costs in your home currency.
What are the fees and who is responsible for them?
Here are some details about the different fees and who charges them to give you an idea of the rates:
Foreign Transaction Fee
Overseas credit card transactions have been imposed.
Imposed by: Issuer Approximate rate: 2% to 3%
Currency Conversion Fee
Overseas Currency Conversion was imposed.
Processor has imposed it.
1% is an approximate rate.
Fee: Overseas point-of-sale currency conversion
Merchant imposed it.
3–12 percent is a rough estimate.
When making a purchase in a foreign country, exercise caution. Understand the various types of fees, who charges them, and what the rates are to have a better understanding of what you’re paying for on your international trip.
CCY conversion fees are unavoidable when purchasing goods in a foreign country or online from an international retailer. You may be able to avoid the foreign transaction fee in some circ*mstances. But only if your credit card company waives the foreign transaction fee. Before making an international purchase, check with your card processor.
Furthermore, we would like to remind you that you should always decline DCC because it will only increase the price of your purchase. If you don’t want to use DCC, you’ll have to pay CCY conversion fees and a foreign transaction fee, which can add up to only 3 to 4% of the purchase price.
There is a good option that is both affordable and simple to use for transactions in China or payments to China.
AP-1 Business is a cost-effective and transparent alternative.
If you want to pay in China quickly and easily, you’ll need a multi-currency card like the AP-1 Business virtual card. Here’s what it’s capable of:
AP-1 Business is quick because your payment to your Chinese supplier or vendor bypasses the intermediary banks that traditional bank telegraphic transfers use. It only takes T+1 for your money to be deposited directly into the recepient’s UnionPay account.
AP-1 Business charges are comparable to those charged by banks, but UnionPay offers competitive and direct exchange rates (no double conversions from SGD to USD to RMB, as some banks do).
AP-1 Business is simple to set up, and you can do it all from your phone.
The AP-1 Business Card is the only digital business account issued outside of China that can be used to make T+1 payments. It is faster than bank-issued telegraphic transfers, which usually have multiple fees and can only be used for payments up to T+5.
This enables you to make payments into China online or offline in the same way that a Chinese local would. It’s simple to load and top up funds in your AP-1 account, and the AP-1 card is UnionPay-compatible. Within 60 seconds, you can send money to a UnionPay personal account holder in China or around the world.
AP-1 currently supports the USD and SGD, but more currencies are expected to be added in the near future.
Visit the website for more information on the AP-1 Business virtual card.
Conclusion
You will be charged a CCY conversion fee and a foreign transaction fee when purchasing or transacting in a foreign location. The CCY conversion fee and the foreign transaction fee are two distinct fees that should not be confused. Some credit cards, on the other hand, waive the foreign transaction fee. Inquire with your service provider about this.
The AP-1 Business virtual card enables you to send money to China much more quickly than banks can. If you’re a company looking to make payments in China, get your AP-1 Business virtual card right away!
