Foreign currency fees: How to prevent banks and credit card companies from taking a cut abroad
The strengthening of the shekel has made travel cheaper, but choosing the right payment method is crucial to avoid hidden fees. Understanding the difference between bank accounts, currency wallets, and credit cards can save families thousands of shekels.
The strengthening of the shekel against the dollar and leading global currencies over the last year and a half has made travel abroad and purchases from international websites cheaper. While consumers cannot influence market exchange rates, they have full control over the payment method used, which directly impacts the fees charged. For an average family vacation, choosing the wrong method can cost hundreds or even thousands of shekels.
Hidden fees and payment options
When purchasing in shekels within Israel, the business bears the clearing costs. Conversely, when purchasing in foreign currency, the economic burden is shifted to the consumer through a complex system of visible and hidden fees.
There are two primary options for foreign currency transactions:
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Advance conversion: Using a bank foreign currency account or a digital wallet. Banks charge an exchange fee of up to 0.19% (with a minimum of about 6 dollars) and a conversion spread fee (the gap between the market rate and the bank's rate), which typically hovers between 1% and 1.5% and tends to spike on weekends.
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Direct credit card payment: The most common method. For 14 major currencies, conversion is based on the Bank of Israel's representative rate without a spread fee, but with a percentage-based conversion fee (standard is about 3%).
Market alternatives
Non-bank foreign currency wallets (such as Max, Cal, and Laya) offer an exemption from exchange fees, though they still profit from dynamic conversion spreads. Nevertheless, they often offer significant savings compared to banks, especially for smaller amounts.
Several cards offer discounted rates:
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0% fee: One Zero digital bank (premium plan), Isracard Basic (with at least one transaction per month), and PassportCard (for active policyholders).
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1% fee: Cards such as 'Reut Takni Li', Clal Pay from Max, and Cal Free.
When paying in currencies without a Bank of Israel representative rate (e.g., Thai baht), a double conversion occurs: the international network (Visa/Mastercard) converts the local currency to dollars, followed by the Israeli credit company converting dollars to shekels.
Practical impact
A sample check (24.7) revealed significant cost gaps:
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1,000 dollar purchase: Using a 0% fee card costs 3,061 shekels, while a 3% fee card costs 3,153 shekels. This results in a saving of 920 shekels on a 10,000 dollar expenditure.
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10,000 baht purchase: The gap between the cheapest and most expensive options is 51 shekels.
Critical tip: Avoid the DCC (Dynamic Currency Conversion) trap. When paying abroad, terminals often suggest charging in your "home currency" (shekels). This is an expensive trap due to the draconian conversion rates set by local clearing companies. Always pay in the local currency.
Future reforms
Competition is expected to increase with the entry of the payment giant Revolut. Additionally, the Bank of Israel is currently working on a reform to improve fee transparency and create a more uniform cost structure for customers.
