Many Canadians are in for a nasty surprise after a trip outside the country. Little did they know that most Canadian credit card companies add a 2.5%-3% foreign transaction fee to each purchase they make out of the country. The good news is, not every credit card issuer charges the fee. The bad news is, only two credit card issuers in Canada subsidize the fee, Chase Canada & Rogers MasterCard.
Unlike the United States, where credit card issuers are increasingly abandoning foreign transaction fees altogether, FX fees represent too large a part of a Canadian credit card company’s income stream to walk away from. The fact is, Canadians travel out of country a lot more often than Americans travel out of the United States, so it’s easier for an American issuer to give up on FX fees than for a Canadian issuer.
For a quick proxy, 30% of Americans have a passport, compared to 70% of Canadians, a good indication of foreign travel. Moreover, Canadian banks make a healthy profit from foreign exchange services from their retail customers, where they charge a 1% to 3% fx surcharge when exchanging Canadian dollars. It’s doubtful the banks will want to offer Canadians a free alternative that will cannibalize their retail fx business.
So what’s the big deal about a credit card that subsidizes foreign transaction fees? For some, especially snowbirds who winter in the south, people who shop across the border regularly or shop online, or those who use their credit card to make business purchases from U.S. vendors, the savings can be huge. Think about it. If you use your credit card while wintering in the United States, you could easily rack-up $10,000 – $20,000 in credit card charges. That’s $250 to $500 in foreign exchange fees going to the credit card companies, that doesn’t have to. Not to mention it also wipes away the 1-2% in rewards you thought you were earning.
The Rogers Platinum MasterCard now gives you 4% cash back on ALL foreign purchases and 1.75% cash back on all other purchases – the richest cash back rate for a no fee card in Canada. On $10,000 of foreign spend that’s $400 in rewards earnings. Other cards like the Marriott Rewards
or Amazon Visa card (no longer offered in Canada as of April 3rd, 2017) waive the 2.5% foreign transaction fee, but only offer 1% in rewards or less.
The Rogers MasterCard foreign transaction subsidy is different than the Amazon or Marriott Rewards cards, but still offers significantly more value than either of those cards. Rogers offers 4% cash back on foreign purchases, but charges 2.5% in foreign transaction fees – the net cash back rate is thus 4% cash back – 2.5% fx fee = 1.5% in net cash back. The Amazon card used to offer 1% cash back with no foreign transaction fees, 1% cash back – 0% fx fee = 1% in net cash back. As a result, Rogers offers 50% more cash back than the Amazon Visa card.
Not only that, using a credit card that subsidizes your foreign transaction fee is actually cheaper than exchanging currencies at the bank, or at a boutique foreign exchange bureau – which routinely cost anywhere from 1%-3% to exchange your money. Debit and out of country ATM cash withdrawals are no better, each typically charging a 2.5% or more foreign exchange fee.
Comparison of Canadian Credit Card Foreign Transactions Fees
Foreign Transaction Fee Offer
|Rogers Platinum MasterCard||
4% cash back on all foreign purchases
|Chase Marriott Rewards Visa Card||
$120 Waived 1st Year
|1.5% fee||4% cash back 1st 90 days in 3 categories||
|TD Aeroplan Visa Infinite||2.5% fee||25,000||
$120 Waived 1st Yr
|RBC Avion Visa Infinite||
|BMO Rewards World Elite||2.5% fee||20,000||$150|
|Scotiabank Gold Amex Card||2.5% fee||20,000||$99|
Hopefully more Canadian credit card issuers, that don’t have a large share of their spend in foreign purchases, or an established foreign exchange business, will step up to the plate and waive their foreign transaction fees. Perhaps some of the more niche issuers like President’s Choice, WalMart, or Canadian Tire can shake things up a little bit the way Rogers and Chase have.
As of right now though, Rogers and Chase are the only game in town, and they’re offering Canadians a SUPERLATIVE opportunity, just not enough of us know about it. Here’s your chance…who know’s how long it will last (looks like Chase is leaving the country).
By the way, for those who think you’re avoiding foreign transaction fees by having a U.S. Dollar credit card, unless you earn American dollars, you’re not avoiding anything. Ultimately, you’ll have to pay your U.S. Dollar credit card bill in U.S. dollars, and you’ll have to convert your Canadian dollars to U.S. dollars at the bank to do so. At that point the bank will charge you it’s 1%-3% foreign exchange surcharge.