How to Avoid High Foreign Currency Fees When Paying Abroad
The strengthening of the Israeli shekel against the dollar and other major currencies over the past year and a half has made traveling abroad and international online shopping cheaper. However, while consumers cannot control exchange rates set by the market, they can choose the payment method, which directly affects the fees charged. Using the wrong payment method during a typical family vacation can cost hundreds or even thousands of shekels.
When paying in shekels within Israel, merchants bear the cost of credit card processing fees. But for foreign currency transactions, most costs are passed on to consumers through a complex system of visible and hidden fees. One option is to convert shekels to foreign currency in advance by opening a foreign currency account at a bank or using a foreign currency digital wallet. Bank foreign currency accounts are usually limited to dollars and euros and involve two fees: a currency exchange fee up to 0.19% and a hidden conversion margin of about 1% to 1.5%, which can increase during non-trading hours.
Non-bank foreign currency wallets like Max, Cal, and Laya offer advantages such as no exchange fee and support for more currencies, but they still charge a conversion margin based on real-time rates. Compared to banks, these wallets can save money, especially on smaller amounts.
The most common method is paying directly with an Israeli credit card without prior currency conversion. Credit card companies convert the foreign currency amount to shekels at the time of transaction, usually charging a 3% fee, which can add up significantly. However, some cards offer reduced or zero foreign currency fees, such as One Zero’s premium card, Isracard Basic (with conditions), and PassportCard for insurance policyholders. Cards with 1% fees are also available, including Reut Takni Li, Clal Pay by Max, and Cal Free by Cal.
A recent sample check on July 24 showed that for a $1,000 purchase, the cheapest option was a zero-fee credit card costing 3,061 shekels, compared to 3,110 shekels via a bank foreign currency account and 3,153 shekels with a 3% fee card. For exotic currencies like the Thai baht, zero-fee cards also proved cheapest, with wallets and 1% fee cards close behind. ATM withdrawals abroad with regular bank credit cards are the most expensive, with about a 3% fee plus minimum charges. Foreign currency wallets waive withdrawal fees, though local ATMs may charge independently.
Consumers should avoid Dynamic Currency Conversion (DCC), where merchants offer to charge in shekels instead of the local currency, as this usually involves very unfavorable exchange rates. Always pay in the local currency.
Looking ahead, the entry of payment giant Revolut, expected to receive a banking license by year-end, and a Bank of Israel reform aimed at increasing fee transparency and competition could reshape the foreign currency fees landscape. Currently, Israeli banks earn hundreds of millions of shekels annually from foreign currency fees, but reforms are still in early stages.
