Foreign transaction fee
When you’re travelling abroad or shopping on foreign websites, every transaction you make with your credit card has to be converted from the country’s currency to Canadian dollars before appearing as a charge on your statement. Because of this, many card issuers charge a foreign transaction fee (usually 2.5%) in addition to the spot rate.
Credit card exchange rate markups
On top of the foreign transaction fee, credit card networks also mark up the exchange rate between Canadian dollars and the foreign currency. This means that you’ll always pay more than the official exchange rate listed by the Bank of Canada. For example, if $1 USD is worth $1.35 CAD, you may be charged a higher rate of $1.37 by the credit card network (e.g. Visa, Mastercard, or American Express).
Dynamic Currency Conversion (DCC)
When you’re making payments in foreign currency, the merchant’s credit card terminal or e-commerce checkout page may offer the option to make payments in the foreign currency or in CAD. This is known as Dynamic Currency Conversion (DCC) and uses a far higher exchange rate – as much as 3 to 7% higher than the market rate.
While DCC may allow you to avoid the foreign transaction fee and credit card exchange rate markups mentioned above, you’ll often end up paying more. Plus, some cards still charge FX fees on DCC transactions, so be sure to double-check yours. In most cases, it’s better to pay in the foreign currency instead.
FX credit adjustment
Sometimes, a foreign currency purchase may show up as multiple debits and credits on your credit card and be marked as a “foreign exchange (FX) credit adjustment”. This happens when the credit card issuer authorizes your purchase immediately, but the merchant posts the transaction later, typically after 2 to 3 days. The final amount charged may be different due to fluctuations in foreign exchange rates, so you’ll be charged again while the original charge is refunded to you.