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If you’re shopping on an overseas site, the foreign exchange rate is just one thing to think about when considering the cost. Different payment options may have fees you need to take into account. We look at the various options plus the traps to watch out for.
Australians can’t get enough of online shopping – more than 70% of us shop over the internet, and one in five purchases are made through overseas websites. Buying overseas can mean scoring a bargain. But the way you pay can push up the cost. Canstar’s research team has crunched the numbers to show how much extra you could be up for – and how to keep the cost down.
Watch out for currency conversion costs
Whenever you make a purchase from an overseas website, your Aussie dollars are converted into the merchant’s preferred foreign currency. Exchange rates are typically set by card issuers like Mastercard and Visa – not your bank. So, as a rule you don’t have much control over the exchange rate.
What you can control is the ‘currency conversion’ fee you pay. This is a separate fee levied when your bank converts one currency into another. As the table below shows, 91% of credit cards charge a conversion fee, with the average being 3.02%. It’s a cost that can also be hard to avoid if you’re paying from a transaction account – 94% of debit cards come with a conversion fee averaging 2.82%.
We’ll look more closely at travel money cards and PayPal shortly, but if you’re keen on using a debit or credit card for overseas purchases, there are ways to potentially avoid currency conversion fees.
| Options for International Purchases Online & Potential Costs | |
|---|---|
| Currency Conversion Fee | |
| Credit Cards | |
| Percent that charge a fee | 91% |
| Average fee (of those that charge a fee) | 3.02% |
| Debit Cards | |
| Percent that charge a fee | 94% |
| Average fee (of those that charge a fee) | 2.82% |
| Travel Money Card | |
| Percent that charge a fee when currency is not loaded | 50% |
| Average fee (of those that charge a fee) | 3.89% |
| PayPal | |
| Currency conversion fee | 4% above the exchange rate |
| Other fees | |
| Average credit card annual fee – non-rewards | $106.30 |
| Average credit card annual fee – rewards | $127.78 |
| Average transaction account keeping fee per annum (of those that charge a fee) | $63.94 |
| Percent of transaction accounts that charge a fee | 36.84% |
| Average travel money card monthly inactivity fee | $2.50 |
| Percent of travel money cards that charge an inactivity fee | 14.29% |
| Source: www.canstar.com.au – 01/07/2020. Credit cards include personal unsecured credit cards. Debit cards based on those associated with transaction accounts. | |
Credit cards
The table below shows the five cheapest credit cards, ranked by annual fee, that charge zero currency conversion fees. The annual card fees vary from $0 with Bankwest and Latitude through to $99 with Coles and FlexiGroup cards. Across the Canstar database, the average annual fee for non-rewards cards is $106.30, rising to $127.78 for rewards-based cards.
The downside of these cards can be a high interest rate – up to 23.99% for instance, with the FlexiGroup Skye MasterCard. As Mitch Watson, Group Manager Research and Ratings at Canstar, cautioned, “If you are using a credit card, be sure to pay off your balance by the due date each month to avoid interest charges.”
| Credit Cards with 0% Currency Conversion Ranked by Annual Fee | |||||
|---|---|---|---|---|---|
| Provider | Card | Annual Fee | Currency Conversion Fee | Purchase Rate | Interest Free Days |
| Bankwest | Zero Platinum Mastercard | $0 | 0% | 17.99% | Up to 55 |
| Latitude | 28 Degrees Global Platinum Mastercard | $0 | 0% | 21.99% | Up to 55 |
| Commonwealth Bank | Low Fee Gold Mastercard | $89^ | 0% | 19.74% | Up to 55 |
| Coles | Rewards Mastercard | $99 | 0% | 19.99% | Up to 55 |
| FlexiGroup | Skye Mastercard | $99 | 0% | 23.99% | Up to 110 |
| Source: www.canstar.com.au – 01/07/2020. Selected based on cards with 0% currency conversion fee, ranked by lowest annual fee. One card displayed per provider. ^$0 in the first year and waived in subsequent years if $10,000 or more is spent on purchases or cash advances in the previous year. Table sorted by annual fee, followed by purchase rate. | |||||
Debit cards
You won’t pay interest using a debit card, though it still pays to be mindful of fees. Over one in three (37%) transaction accounts still charge account-keeping fees, and they can be worth avoiding because on average, the fees add up to $63.94 annually.
The table below highlights a range of accounts offering the best of both worlds – zero account-keeping fees and no currency conversion fees. But there can be strings attached.
Both CUA and ING will refund or rebate the currency conversion fee as long as you meet minimum monthly deposit requirements and make a set number of transactions using your debit card each month. This highlights the need to understand your banking and spending habits to be sure you meet the conditions needed to avoid currency conversion fees.
| Transaction Accounts with 0% Currency Conversion Available & $0 Account Keeping Fee | ||||
|---|---|---|---|---|
| Provider | Account | Annual Fee | Currency Conversion Fee | Debit Card Type |
| Citi | Global Currency Account or Plus Transaction Account | $0 | 0% | Mastercard |
| CUA | Everyday Snap Account | $0 | 2.95%* | Visa |
| HSBC | Everyday Global Account | $0 | 0% | Visa |
| ING | Orange Everyday | $0 | 2.50%^ | Visa |
| Macquarie Bank | Platinum Transaction Account or Transaction Account | $0 | 0% | Mastercard |
| UBank | USpend | $0 | 0% | Visa |
| Source: www.canstar.com.au – 01/07/2020. Based on transaction accounts with debit cards available for online purchases. ^Fee will be rebated in the following month that you deposit at least $1,000 from an external bank account and make at least 5 card purchased (not pending) on your ING debit or credit card. Table sorted alphabetically by provider. *International card transaction fees (including online purchases) will be refunded for the following month that you deposit $2,000 or more and make 5 CUA Visa Debit card purchases from your Everyday Snap Account. | ||||
Travel money cards
Travel money cards aren’t just handy if you’re jet-setting internationally. They can also be used to make purchases on overseas websites. You will need to keep the card balance topped up with your preferred currency. One in two cards charge a fee averaging 3.89%, when currency is not loaded.
“If you choose a travel money card, it’s a good idea to ask the provider about the foreign exchange rates on offer, and the cost if you spend in another currency not already loaded,” suggested Mr Watson.
If you’re not sure which currency to opt for, a multi-currency account can be an option. “Shopping with a multi-currency account can give you the added piece of mind of locking in exchange rates when the rates are favourable, by exchanging funds and holding them in your account,” Mr Watson explained.
How the fees add up
The additional cost of foreign currency conversion fees can sound small – a few percent here and there. But it adds up. The table below sets out the savings you can pocket on a $US100 purchase by skipping currency conversion fees – anywhere from $4.73 with a credit card through to $6.09 with a travel money card. Making 10 such purchases annually can mean saving as much as $60.
| Impact of Currency Conversion Fees on $US100 Online Spend | |||
|---|---|---|---|
| Cost in AUD With Fee | Cost in AUD Without Fee | Difference | |
| Credit Card | $161.40 | $156.66 | $4.73 |
| Debit Card | $161.08 | $156.66 | $4.42 |
| Travel Money Card | $162.75 | $156.66 | $6.09 |
| Source: www.canstar.com.au – 01/07/2020. Calculations use an average exchange rate for Visa and Mastercard sampled over the month of March 2020 and average currency conversion fees for cards that charge a fee. Travel money card fee is charged when the currency of the purchase is not loaded onto the card. Credit cards include personal unsecured credit cards. Debit cards based on those associated with transaction accounts. | |||
What about PayPal?
PayPal can be a secure way to pay, but it’s not cost-free when it comes to buying offshore. You’ll be charged an additional 4% above the exchange rate at which PayPal obtains foreign currency. This can potentially make it more expensive – based on currency conversion fees alone, than the other options we have looked at. We haven’t included PayPal in the table above as foreign exchange rates used by PayPal were unavailable for the sample period.
One quick tip. Even if you stick with websites ending with ‘com.au’, which appear to be based in Australia, you could still be hit with currency conversion fees. The merchant may be located offshore, and process payments overseas. The only way to know is to check with the retailer before you hand over any payment details.
About Nicola Field
About Nicola FieldNicola Field is a personal finance writer with nearly two decades of industry experience. A former chartered accountant with a Master of Education degree, Nicola has contributed to several popular magazines including the Australian Women’s Weekly, Money and Real Living. She has authored several best-selling family-focused finance books including Baby or Bust (Wiley) and Investing in Your Child’s Future (Wiley).
Main image source: Creative Caliph (Shutterstock)
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