Foreign transaction fees: 7 tips to avoid unnecessary costs

person travelling internationally on a plane

Entrepreneurs embark on international business trips to secure new partnerships, recruit employees, attend conferences, and get a fresh perspective. When you're traveling abroad—and budgeting beforehand—the last thing you want to worry about is foreign transaction fees. 

In this guide, you'll learn how to avoid these and other unnecessary account charges when you travel internationally. 

What are foreign transaction fees? 

A foreign transaction fee is an extra charge for purchases made in a foreign currency or for transactions that pass through a financial institution in a foreign country. 

These fees are also called international transaction fees, foreign purchase transaction fees, and foreign currency transaction fees. (In this article, "foreign" refers to transactions, businesses, and financial institutions outside the United States.) 

Let's break down that definition. The average foreign transaction fee ranges from 1%-3%. If you use a credit card to pay for a business lunch in Barcelona, for example, you may see a 2.6% foreign transaction fee on your next credit card statement.

Some scenarios aren't so straightforward. A foreign transaction fee may also apply to online purchases. If you sign up for a software subscription with a non-U.S. company and they process the transaction in their local currency, you may be charged extra. And even if your foreign payment is made in USD, it may pass through a foreign bank at some point.

Clearly, there's more visibility in the former scenario than the latter. That's why the simplest way to avoid foreign transaction fees is to select a business credit card that doesn't include any. 

Why foreign transaction fees exist

When you spend money abroad, domestic financial institutions take on a greater risk of card fraud. In addition, they have to convert these payments to U.S. dollars in order to charge your account. Some credit card issuers take these added costs and pass them along to you, the cardholder, as a foreign transaction fee. 

When you receive a foreign transaction fee, you're charged by one or both of the following entities:

  • Credit card networks: The major card networks, such as Visa, Mastercard, American Express, and Discover, facilitate payments between domestic credit card issuers and foreign institutions. They determine the interchange fees they charge merchants to accept credit and debit cards at their business.
  • Credit card issuers: Issuing banks determine the account terms, bonuses, and rewards for their credit cards. Examples include U.S. banks like Capital One, Bank of America, and Wells Fargo. 

Not all card issuers shift the costs of global commerce to business owners. The Brex corporate credit card is accepted in over 200 countries and has zero foreign transaction fees.

Example: How foreign transaction fees add up

You and your co-founder plan a five-day, four-night business trip from San Francisco to London. Excluding the flight, here are your estimated costs:

Total per person:

  • Accommodations: $150 per night for a hotel or Airbnb
  • Transportation: $60 per day for rideshares
  • Meals: $100 per day (including business lunches) 
  • Miscellaneous: $50

At $1,450 per person, you set aside roughly $2,900 for the trip after securing your plane tickets. But if you use a card with a 3% foreign transaction fee, you should also expect $87 in extra charges. Many companies fail to include this in their budgets. At that rate, you're paying a considerable premium simply to sleep, eat, and get to your next presentation.

Extrapolate those costs for a team trip or a few seminars per year, and it adds up to hundreds of dollars in charges that aren't returning value. We've written before about the importance of avoiding even a 1% charge, be it a minimum balance fee, wire transfer fee, or other coercive account terms. Now, let's talk about how to steer clear of the most common travel-related card charges, including foreign transaction fees. 

How to avoid foreign transaction fees and other travel charges

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According to Brex data, startup founders spend about 10 weekends traveling each year. When you make purchases in a foreign country, there's added potential for expensive mistakes. These can include fees and fluctuating currency exchange rates. Both can cost you.

So, bring these seven tips for avoiding unnecessary travel charges with you on your next trip. 

1. Choose a business credit card with no foreign transaction fees.

No foreign transaction fee credit cards are more common than they used to be. Every business travel card should guarantee multiple layers of security, industry-leading fraud protection, and customer liability protection. Of course, you can also look for excellent travel rewards, worthwhile travel partners, and opportunities for bonus points.

But a foreign transaction fee is simply the common denominator. The best credit card serves dual purposes. They support everyday spending as well as larger business investments like international travel. 

Here are other important factors to consider when choosing a new travel card (or re-evaluating your current one):

  • Do you have to personally guarantee your business credit card?
  • Is there an annual fee, and if so, what value is offered in return?
  • If you carry a balance, what is the average annual percentage rate (APR)?
  • Are there fees for balance transfers?
  • Will you have 24/7 access to a mobile app and customer support? 

If you decide to get a new business card, apply early to allow time for the company to approve and mail your new card(s). Some companies offer virtual cards so you're ready to go from day one of account opening. 

2. Review your card's terms and conditions

U.S. credit card companies must disclose foreign transaction fees in your cardmember agreement per the Truth in Lending Act. You should review the terms and conditions of your account whether or not your travel card has foreign transaction fees. 

Fees for foreign purchases are typically listed under the rates and fees table. They're typically formatted like these examples:

  • Foreign Transactions: 3% of the amount of each transaction in U.S. dollars.
  • Foreign Purchase Transaction: 2% of each foreign purchase or foreign ATM advance transaction in a foreign currency.

Parsing through the fine print helps you avoid fees that are common during international travel, such as foreign ATM charges and over-limit penalties. Contact the card issuer if anything is unclear or the foreign rate doesn't match what was advertised. 

3. Determine which currency conversion rate you'll receive

If you Google the exchange rate for two currencies, you'll see the mid-market rate. This is the mid-point between the buy and sell prices of two currencies. In most cases, this isn't the rate you'll receive for non-U.S. credit card transactions.

Rather, currency exchange rates for credit cards are determined by the card networks, regardless of which credit card you use. If a card issuer charges a foreign transaction fee, they'll add a percentage on top of that rate. 

Mastercard and Visa both provide a currency conversion rate calculator for their cardholders. With these tools, you can determine how much your planned foreign transactions will truly cost and spot incorrect charges later on. 

4. Pay with an appropriate credit card as often as possible

Experts recommend using a credit card abroad to get the most favorable and accurate exchange rates. This makes it a much more affordable way to convert currency compared to cash. But again, see above for our recommendations on finding a credit card that will work well for you abroad.

If you anticipate a need for cash, it's best to buy foreign currency from your bank before traveling. Avoid exchanging money at a currency kiosk in the airport or on the street, as these vendors often add hefty mark-ups.

If your card is stolen or lost, credit cards provide greater consumer protection than cash and debit transactions. U.S. consumers are liable for no more than $50 in fraudulent charges on each credit card. Many card issuers have zero-liability policies for unauthorized purchases.

5. Make purchases using the local currency

While you're traveling, a merchant may offer to convert your purchase to U.S. dollars before you pay. Or, the point-of-sale terminal may prompt you to choose between paying in your card's currency and the seller's currency. This is a card feature called dynamic currency conversion (DCC). 

If you agree to a DCC that converts a transaction to USD, the merchant chooses the exchange rate, typically resulting in a poor conversion rate and higher fees. In addition to the DCC, your card issuer will still charge you a foreign transaction fee if applicable. DCC is entirely optional—simply decline if you aren't interested. 

6. Avoid a cash advance unless it's an emergency 

A cash advance lets you withdraw money from your credit account at an ATM or bank. In the context of foreign purchases, only take out a cash advance in a serious emergency while you're abroad.

It's a high-cost method of accessing cash for a few different reasons. First, cash advances carry a different, higher interest rate than purchases. The average cash advance APR was 23.68% in 2017, and rates of up to 26% are common. Most advances have no grace period, so interest is charged immediately. 

Second, many issuers charge a cash advance fee of 5% of the advance amount, often with a minimum fee of $10. This fee is added to your balance once the advance is processed.

7. Watch out for foreign ATM fees.

Foreign ATM fees go by names, such as currency withdrawal fees and usage fees. Even if you have a business debit card with zero foreign transaction fees, many U.S. banks charge extra for withdrawing cash abroad. 

These fees can stack up. For one transaction, you could be charged a foreign currency conversion fee and a flat-rate international ATM surcharge. The ATM owner may also charge an access fee.

The good news is that some U.S. banks are part of global ATM networks. But if you withdraw cash from a partner bank's ATM, they may waive these charges.

Finally, remember to notify your credit card issuer about your travel dates as early as possible. They'll add a note to your account so they don't flag your non-U.S. spending as abnormal activity. 

The business travel credit card for startups 

There's more to a business travel card than whether or not it includes foreign transaction fees. With the Brex card for startups, you'll automatically earn one point per dollar spent on all transactions. 

But if you make Brex your exclusive corporate card, you'll get in on the most valuable rewards program available. Here are a few of the Brex Travel perks

  • Earn 7x points on rides like Uber, Lyft, and taxis
  • Earn 4x points on airfare, and hotels
  • Earn 3x points on restaurants and dining
  • Use points the way you want—book travel, purchase software, etc.
  • Receive 24/7 concierge support, domestic or international

No matter where you're traveling, you need a convenient way to keep expenses organized. The Brex mobile app includes instant receipt-matching and gives you visibility into your accounts whenever you need it.

The origin of smooth business travel and spending

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Choosing a business credit card with no foreign transaction fees—and using it exclusively during your travels—is the best way to avoid needless international charges. 

As with most agreements, it's all about the fine print. Review your terms and conditions before going abroad, and reach out to your card issuer with any questions. 

Today, your business credit card can easily function as your go-to rewards credit card. Some card offers go above and beyond, providing startups with enterprise-level travel benefits on top of the fraud protection every business deserves. Don't settle for less when it comes to your travel card.

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