Foreign Transaction vs. Currency Conversion Fees: What’s the Difference?

Navigating the complexities of international transactions can often feel like traversing a financial minefield, particularly for Singaporeans who frequently travel or indulge in online shopping from global retailers. The myriad of credit card fees associated with overseas spending can be perplexing, leading to unexpected costs and potentially derailing your budget.

This article serves as a comprehensive guide, designed to demystify the often-intertwined concepts of foreign transaction fees and currency conversion fees. By shedding light on their distinct characteristics and outlining strategies for avoidance, we empower you to make informed decisions and optimize your spending when venturing beyond Singapore's borders, whether physically or virtually.

A foreign transaction (FX) fee is a charge imposed by your bank or credit card issuer when you make a purchase in a currency other than Singapore Dollars (SGD). These fees are quite common among credit card providers in Singapore, including major local banks like DBS and OCBC. Typically, this fee is a percentage of the transaction amount, ranging from 2% to 3%. However, certain credit cards, particularly those designed for frequent travellers, may reduce or waive these fees as a perk, making them an attractive option for those who often spend abroad.

A currency conversion fee is a separate charge that occurs when your credit card provider converts a purchase made in a foreign currency back into SGD. This conversion process is necessary for your statement to reflect the amount you owe in your local currency. Some credit card providers in Singapore set their own conversion rates and apply an additional fee on top of the prevailing exchange rate, which can vary. Therefore, understanding how your card provider handles currency conversions is crucial for managing your spending when overseas.

Yes, it's entirely possible to incur both a foreign transaction fee and a currency conversion fee on the same transaction. This often happens when you use dynamic currency conversion (DCC). DCC allows you to see the transaction amount in SGD at the point of purchase, but it also allows the merchant or ATM provider to set the exchange rate, which is often less favourable than your card provider's rate. This can result in both a currency conversion fee and a foreign transaction fee being charged.

For example, a Singaporean tourist purchasing souvenirs in Japan might encounter both fees if they opt to pay in SGD at the point of sale, or if they withdraw cash from an ATM that offers DCC. Similarly, when shopping online from international retailers that offer to display prices in SGD, both fees might apply.

To avoid both, get a credit card with no foreign transaction fee and decline the DCC. This will ensure that your transactions are processed in the local currency, allowing your credit card issuer to handle the currency conversion at their typically more favourable rates, and eliminating the extra foreign transaction fee altogether.