Foreign transaction fees explained: How much they can cost you and how to avoid them

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When you're traveling abroad, making a payment with the wrong card can be expensive.

If you use a credit card or debit card that charges a foreign transaction fee, you can expect to see an extra fee added to each of your non-U.S. purchases. And in some cases, the fee can be as high as 5% of the transaction amount.

Read on to learn how foreign transaction fees work and how to avoid them.

A foreign transaction fee is a fee that some credit card and debit card issuers charge when you make purchases in other countries. You can also be charged this fee if you make a purchase in the U.S., but the vendor processes your payment in another country or currency.

Not all cards come with foreign transaction fees, but for those that do, the fee is usually 1% to 3%. This fee is used to cover a variety of costs related to making a foreign purchase, including taxes, shipping, and network fees.

Read more: 8 best bank account features for frequent travelers

Foreign transaction fees are usually 1% to 3% of the transaction amount. So if you make a $500 purchase, the fee will likely run somewhere between $5 and $15.

With that said, each card issuer sets its own fees. So the only way to know exactly what your foreign transaction fee might be is to look at the details for each card.

There's a chance your debit card has a lower foreign transaction fee than your credit cards. However, it's important to remember that each card issuer is different, so you don't want to make any assumptions about your card fees . To be sure, check the cardmember agreement for each of your accounts.

Even if your debit card has a lower fee, you may still want to avoid using it while abroad. Most credit cards have added protections like zero-fraud liability, which guarantees you'll get your money back if someone makes an unauthorized purchase on your card, as long as you report it right away.

In addition to fraud protections, some credit card issuers also offer insurance coverage for certain travel-related purchases, such as flights and car rentals.

Read more: Credit card, debit card, or cash: What's best for travel?

A foreign transaction fee is just one type of currency conversion fee. There are several other currency conversion fees you might encounter while traveling abroad, when you shop online with vendors who are located outside of the U.S. They include:

Dynamic currency conversion (DCC) : You might have to pay a DCC fee if you opt to make a transaction in U.S. dollars instead of the local currency. These fees can range anywhere from 1% to 12% of your transaction amount.

Commission or service fee : Banks and currency exchange services can charge you a commission or service fee to convert your currency . Depending on the company, the fee might range anywhere from 1% to 8%.

Because of all the potential fees, it's often cheaper to pay with local currency than with a credit or debit card. But if you do want to pay in cash, just make sure you do your research ahead of time to find the safest and most affordable places to exchange your currency.