What is an FX Fee?

Learn what an FX fee is and how they are calculated. You can also learn how to avoid FX fees completely by using the HyperJar pre-paid travel card.
Mathew Megens
March 22, 2024
min read

Holidays and trips abroad can be expensive, especially if you’re not clever with how you spend your money while you’re away.

FX fees - short for ‘foreign transaction’ fees - are extra charges when you spend money abroad on some credit or debit cards. These fees, usually 1-3% of the purchase, cover the cost of converting currencies and processing international transactions. They’re charged each time you spend using a card, so you could be paying an extra side of FX fees if you eat out for breakfast, lunch and dinner as well as on your souvenirs and days out.

It’s important to remember that it’s a fee rather than a rate. For example, an exchange rate  is the baseline rate used to convert one currency to another. Imagine it's the base price of exchanging money. An FX fee is an extra charge on top of the exchange rate. It's like a service fee for processing the conversion and handling the international transaction. 

This blog post will investigate how you can avoid FX fees to bring down the cost of travelling abroad.

How do FX fees work and how are they calculated? 

FX fees, or foreign transaction fees, are additional charges tacked onto your bill when you use debit and credit cards in a foreign country or to buy things in a foreign currency from a website, for example. These fees typically range from 1% to 3% of the total transaction amount. They exist because converting your local currency to the foreign currency you're spending in involves additional costs for the bank.

Calculating the total cost of an FX fee is straightforward. First, identify the transaction amount in your home currency. You can do this by using Mastercard’s currency calculator tool. Then, multiply that amount by the FX fee percentage charged by your credit card issuer. This will give you the exact amount of the fee you'll be charged on top of the standard exchange rate.

For instance, let's say you're travelling with a credit card that has a 2% FX fee and you buy a souvenir for £100. To find the FX fee you might be charged, multiply £100 by 2% and you’ll see there's a £2 fee added to the purchase price. So, in total, you'll be charged £102 for a £100 souvenir. Remember, it's always wise to check your credit card's FX fee structure before using it abroad to avoid any unexpected charges on your bill.

Why do banks charge FX fees? 

Banks charge foreign transaction (FX) fees for a couple of reasons. Firstly, converting currencies involves extra work for them. They need to exchange your money at a specific rate, which can fluctuate, and this exposes them to some risk. 

Secondly, there are costs involved in processing international payments. Banks rely on networks like Visa or Mastercard, who also charge fees for these transactions. The FX fee you see is a combination of these costs and a bit of profit for the bank.  

How to find an FX fee before getting your card

Before choosing a card to take abroad with you, always look at the small print. Banks don’t tend to advertise their FX fees as they don’t want to draw your attention to extra costs. The only time FX fees are mentioned by banks is if they don’t charge them, in which case they’re likely to spread this good news far and wide.

If your bank isn’t advertising zero FX fees, then there’s a good chance you’ll be paying them. Check their website or mobile app and look for a section on foreign transactions or international fees. If that’s tricky, call customer service or visit a branch and ask to speak to a customer service representative. They can confirm FX fees for your specific card.

How to avoid paying FX fees

If the thought of paying FX fees every time you spend abroad makes your blood boil, take note of these ways to avoid paying them. One option is to use a prepaid debit card like Hyperjar, which charges nothing on top for spending abroad. Another is to pay in cash using the local currency. Just make sure you take the cash out before you go, as foreign cash machines don’t always offer the best exchange rate and most add on an extra charge for international cash withdrawals. 

If you are going to pay using a card, always choose to pay in the local currency rather than pounds sterling. When you choose to pay in pounds at a shop or restaurant, they are allowed to set their own exchange rate to convert the amount you’re spending. They may also add extra conversion fees on top of this. But when you pay in the local currency, Visa or Mastercard will set the exchange rate.

Using HyperJar to avoid paying FX fees

Rather than hunting around to find out what your current card’s FX fees are, it’s simpler to download the HyperJar app and get a free prepaid card. There are no credit checks and you can open a full adult account from the age of 17 and add the HyperJar card to Apple or Google Pay.

When you spend abroad using your HyperJar prepaid card, you benefit from the competitive exchange rate offered by Mastercard. This eliminates any hidden fees the bank might add on top of the base rate. HyperJar itself charges no transaction fees for spending in any currency with your card. This means you get the Mastercard rate without any extra markup from HyperJar.

You can load money into the app before you travel, and create different jars to budget for things like accommodation, souvenirs and days out. If you need any more for emergencies, you can transfer more while you’re away without charges as long as the amount is over £10. You can also freeze and unfreeze the card instantly in the app if it’s been compromised in any way. Travelling with friends? Create shared jars and split the cost to make it easy for everyone to pay their way.

If you’re thinking about travelling abroad, you might also like to read:

How to take money on holiday

Best ways to spend money abroad

Using HyperJar travelling abroad 

Mathew Megens

Co-Founder of HyperJar

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