November 18, 2022
Explainer

Foreign transaction fees in 2023: how they work and how to avoid them

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International travel is exciting. It opens up the opportunity for expansion, exposes you to a host of networking opportunities, and can be a great source of talent acquisition. In the end, iInternational travel is a way of life and a career necessity for many business travelers.

No matter which side of the issue you land on, there’s one fee that can cause a meaningful increase in the cost of your travels – the foreign transaction fee.

Whether you use a credit or debit card on your travels, there’s a strong chance that you could spend 3% or more in fees every time you swipe your card overseas. That means for every $1,000 you spend, you may be shelling out $30 in fees. A wholly unnecessary and avoidable expense that adds a burden to your bottom line.

The good news is that there are ways to avoid these fees. It’s all about understanding your options and making wise spending decisions. In this article, we’ll dive into some of those options including several business credit cards without foreign transaction fees and more.

What is a foreign transaction fee?

Foreign transaction fees, also known as international transaction fees, are fees credit and debit card issuers typically charge when you transact with a foreign merchant. These fees cover three important costs for the financial institution:

  • Currency conversion: It costs money to convert U.S. dollars into foreign currency. These currency conversion fees are baked into foreign transaction fees.
  • Money transfer: It’s also more expensive to send money to a merchant internationally than domestically.
  • Infrastructure costs: Financial institutions must have the infrastructure to support foreign transactions. Part of the fee helps cover the cost of infrastructure and administration.

These fees aren’t just charged to frequent travelers who do business with foreign retailers. You can expect to pay a foreign transaction fee if you shop with a foreign provider online and charge your card in any currency other than U.S. dollars.

How do foreign transaction fees work?

The basic concept of foreign transaction fees is relatively simple. Credit card companies and other financial institutions charge you a set fee when you use your credit or debit card to transact with foreign merchants.

However, foreign transaction fees go beyond these simple mechanics.

Every financial institution is its own company and free to do business how it chooses. So, the fees can vary wildly from one institution to the next. The details of how foreign transaction fees work are outlined below.

How much are foreign transaction fees?

When you make a transaction in a foreign country, you can expect to pay fees unless your financial institution has clarified it doesn’t charge this type of fee. But how much can you expect to pay?

That depends on the financial provider you use.

As mentioned above, each financial institution is its own company and can run its company as it sees fit. That means fees can vary wildly from one financial institution to the next. However, these institutions want to stay competitive with one another.

In order to keep the fee competitive, most financial institutions keep their foreign transaction fees between 1% and 3%. Keep in mind that a few institutions have offers with no foreign transaction fee, and others may charge more than 3%.

Foreign transaction fees by provider

Each debit or credit card issuer sets its own foreign transaction fee. Here are the typical fees among the most popular credit card providers:

  • Chase: Chase typically charges a 3% foreign transaction fee with the exception of a couple of 0% offerings.
  • Citi: The average foreign transaction fee on Citi credit cards ranges from 0% to 3%.
  • Capital One: Capital One doesn’t charge foreign transaction fees.
  • American Express: American Express charges between 0% and 2.7% for foreign transactions.
  • Discover: Discover doesn’t charge foreign transaction fees.
  • Bank of America: Bank of America typically charges a 3% foreign transaction fee on credit card and debit card products, although there are some 0% offerings.
  • Wells Fargo: Wells Fargo charges between 0% and 3% for foreign transactions.
  • U.S. Bank: U.S. Bank charges between 0% and 3%.
  • Barclays: Barclays charges 2.99% when you transact with a foreign merchant.

Which cards have zero foreign transaction fees?

Although most financial institutions charge foreign transaction fees, the vast majority offer at least one travel credit card that doesn’t come with this type of fee, though you may have to have a good to excellent credit score to be approved for these options.

When you compare these options, it’s important to pay attention to factors other than these particular fees. Factors like rewards, interest rates, annual fees, and other features should all play a role in your decision on whether or not to apply for a new credit card or spending account.

Some of the best credit cards and spending accounts with no foreign transaction fees are reviewed below.

Ramp

Ramp is the best no-foreign-transaction-fee option for businesses, both small and large.

Ramp is the best corporate card with no foreign transaction fee because it offers:

  • Unlimited cardholders: You can assign unique purchase cards to as many cardholders as you’d like. You can turn these cards on and off as you’d like and set spending limits, giving you complete control over corporate spending.
  • Dynamic currency conversion: Dynamic currency conversion means you get the best conversion rates as you spend abroad.
  • Detailed expense tracking and analytics: You can track where every penny of your company’s money goes and dive into analytics to find inefficiencies to alleviate.
  • Virtual credit cards for business: You can also create as many virtual credit cards as you’d like.
  • 1.5% cash back on all purchases: No set categories, limits, confusing multipliers or any other red tape.
  • No annual fees: Ramp doesn’t charge any pesky annual fees that competitors do.

The bottom line is simple; if you’re looking for business credit cards and spending accounts with no foreign transaction fee, Ramp offers the most comprehensive offering available.

Capital One SavorOne Cash Rewards Credit Card

The Capital One SavorOne Cash Rewards card offers a wide range of perks for consumers looking for options with no foreign transaction fees. Some of the most exciting benefits of the card include:

  • Cash back: You get 3% back when you use the card for dining, entertainment, and grocery store purchases. You also earn 3% on purchases with popular streaming entertainment providers. The card comes with 1% back in all other categories.
  • No annual fee: Don’t shell out money every year just to have the card.
  • 0% intro APR: Enjoy a 0% intro APR on purchases and balance transfers for the first 15 months you have the account. A 17.99% to 27.99% variable APR applies after that.
  • Capital One Travel: Get 5% unlimited cash back on travel bookings through Capital One Travel.
  • Multiple rewards redemption options: Redeem your rewards for statement credits via PayPal, or even use them in real-time at the point of sale.

Wells Fargo Autograph Card

The Wells Fargo Autograph Visa card is a compelling option if you’re looking for a no-foreign-transaction-fee option with a strong credit card rewards structure. Here are the perks to signing up for this offer:

  • Travel points: Earn three times the points at restaurants, gas stations, and transit services. You also earn three times the points on travel accommodations, popular streaming services, and most phone plan purchases.
  • Bonus points: You’ll get 30,000 bonus points (a $300 cash value) when you spend $1,500 within the first three months of having your account.
  • No annual fee: You won’t pay a yearly fee to be a Wells Fargo Autograph cardholder.
  • 0% intro APR; Enjoy 0% interest on purchases and balance transfers for the first year after account opening.
  • Multiple reward redemption options: You can redeem your rewards points for travel, gift cards, or eligible purchases on your statement.

Chase Sapphire Preferred Card

Chase is one of the largest credit card lenders in the world. So, it’s no surprise that the company offers one of the best credit cards with no foreign transaction fees – the Chase Sapphire Preferred card. Here are the perks of being a Chase Sapphire Preferred cardholder:

  • Sign-up bonus: Earn a 60,000-point sign-up bonus when you spend $4,000 on purchases in your first three months as a member. That’s worth $750 in travel rewards.
  • Generous rewards program: Earn five times the points on travel purchases through Chase Ultimate Rewards, two times the points on all other travel purchases, three times the points on streaming service purchases, and one point for each dollar you spend elsewhere.
  • Additional reward point value: When you redeem your rewards points for travel with Chase Ultimate Rewards, your points are worth 25% more.
  • My Chase Plan: Break purchases of over $100 into multiple fixed monthly payments to stay in control of your credit card balance.

Although there are several perks to the Chase Sapphire Preferred card, it’s worth mentioning that the card comes with a $95 annual fee and doesn’t offer a 0% promotional interest rate.

Bank of America Travel Rewards Credit Card

The Bank of America Travel Rewards credit card is another compelling offer provided by one of the largest lenders in the United States. Some of the biggest perks to signing up for this card include:

  • Earning rewards: You’ll get one and a half points for every dollar you spend, regardless of the category. There’s no limit to the number of points you can earn, and your points never expire.
  • No annual fee: That’s a savings of around $100 per year compared to competitors that charge annual fees.
  • 0% intro APR: Enjoy a 0% introductory interest rate on purchases and balance transfers for the first 18 billing cycles. The interest rate will be between 16.99% and 26.99% variable after that.
  • Bonus points: Earn 25,000 bonus points when you spend $1,000 within your first 90 days as a cardholder. That’s worth a $250 statement credit toward dining and travel purchases.
  • Preferred rewards: If you become a preferred rewards member, you’ll earn between 1.87 and 2.62 points for every dollar you spend.

Deserve EDU Mastercard

Student credit cards allow young adults to access money while they build their credit. One of the best credit cards for students is the Deserve EDU Mastercard, and that’s not just because it doesn’t charge foreign transaction fees. Some of the biggest benefits of having the card in your wallet include:

  • Build your credit: The Deserve EDU card is designed to help you build your credit while you get rewarded for purchases.
  • Amazon Prime Student membership: The card comes with a free membership to Amazon Prime Student for a full year.
  • Cash rewards: Get up to 1% back in cash when you use your Deserve EDU Mastercard for purchases.
  • Cell Phone Coverage: Worried about breaking your phone? If it happens, you may qualify for repair or replacement coverage.
  • Mobile App: An intuitive mobile app makes it easy to manage your account on the go.

How to avoid foreign transaction fees

Money management is all about avoiding undue expenses. You take time to trim down your bills, make your business savings work for you and do other things to keep your spending down and revenue up. Why not avoid foreign transaction fees too?

It’s not as hard as you may think.

There are several options to help you avoid paying up to 3% just to process a transaction with a foreign merchant. The most common ways to save abroad are detailed below.

Convert cash at home 

Currency exchange rates are the same worldwide, but the fees to exchange currency vary wildly from one geographic location to the next. The good news is that those fees are typically the lowest right here at home. That’s because the U.S. dollar is the standard currency at which goods and securities are quoted and traded worldwide.

You can avoid foreign transaction fees by avoiding plastic payments altogether.

Instead, go to your local bank or other financial institution before you or an employee goes on a trip and convert some cash to the local currency of your destination. This makes it possible to spend paper rather than plastic, saving money in the process.

Watch for cash conversion fees

If you decide to convert your money to local currency overseas, shopping around may be a good idea. Some cash conversion fees can be significantly higher than foreign transaction fees on credit and debit cards.

Although this may not be a tip for avoiding foreign transaction fees, it’s worth paying them in these cases.

After all, why would you sign up to pay a 5% fee to convert your cash into local currency if you can pay a 1% to 3% foreign transaction fee and enjoy the convenience offered by credit and debit cards?

Nonetheless, before you convert your cash in a foreign country, look for multiple options and compare the cost, not only among the options but also among your foreign transaction fees on your spending accounts.

Avoid the ATMs in foreign countries 

ATM fees are already an annoyance right here at home. If you use an out-of-network ATM, you can expect to pay anywhere from $3 to $5 in service fees to access your cash. And that doesn’t include what your financial institution may charge you for using an out-of-network option.

Unfortunately, foreign ATM fees bring this cost to a whole new level. The cost of multiple employees using overseas ATMs can become painful. There are three different types of fees to consider before using a foreign ATM:

  1. ATM fees: Foreign ATM fees may be significantly higher than the $3 to $5 you expect to pay when you use an out-of-network ATM for withdrawals in the United States.  
  2. Foreign transaction fees: Your financial institution will likely charge a foreign transaction fee every time you use an ATM in another country.
  3. Currency conversion fees: Finally, the ATM provider may charge currency conversion fees to convert your money into local currency.

To put that into perspective, if you were to use a foreign ATM to access $200, you would likely pay at least a $5 service charge, a 1% foreign transaction fee, and a 2% currency conversion fee. So, at minimum, that $200 costs you $11 to access. That’s 5.5% in total fees.

Ramp: Go further than zero foreign transaction fees

If you’re tired of your business racking up foreign transaction fees every time you or one of the members of your team travels, it’s time to sign up for Ramp. Ramp offers unlimited spending accounts, both physical and virtual, and you’ll never spend money on a foreign transaction fee with the company. However, Ramp is far more than a spending account; when you work with the company, you get:

  • Comprehensive expense tracking and analytics: You’ll see where every penny of your company’s money goes and who’s spending it. This gives you the ability to find wasteful spending and put an end to it, ultimately expanding your bottom line.
  • Accounting: Connect your company’s account software and spending accounts to get a complete picture of your company’s financial well-being.
  • Financial reports: Build detailed financial reports at the click of a button. Use these financial reports to improve your company or to seek investments.

With Ramp, you’re not just getting a quality spending account for your business; you’re getting a comprehensive financial service that can help you grow.

Click here to see a free demo of the platform in action.

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FAQs
How can I avoid foreign transaction fees?

There are multiple ways to avoid foreign transaction fees altogether. Some of the most common options include:

  • Spending accounts with no foreign transaction fees: Use spending accounts that don’t charge foreign transaction fees. You can find a list of these options and their perks above.
  • Convert your cash before your trip: Convert your cash into local currency before you take your trip. If you use cash, you’ll never have to worry about a foreign transaction fee.
  • Transact using United States dollars: The United States isn’t the only place U.S. dollars are accepted. The USD is the most in-demand currency around the world. As a result, you may be able to use your dollars overseas, saving money on foreign transaction fees in the process.

Is a currency conversion fee the same as a foreign transaction fee?

Currency conversion fees and foreign transaction fees are not the same. Here are the details that make the two unique:

  • Foreign transaction fees. Foreign transaction fees are fees your lender or financial institution charges when you use your spending account to transact with international merchants. Although these fees do allow you to transact using your base currency and include the cost of currency conversions, they’re not necessarily currency conversion fees.
  • Currency conversion fees: Currency conversion fees are the fees financial institutions charge you to convert one currency to another. For example, if you’re going to the UK, you may want to convert your USD cash into British Pounds. You’ll likely pay a small fee to do so.

Are international transaction fees tax deductible?

Most costs your business has to pay are tax deductible. If you operate internationally, international transaction fees will likely be something you can’t avoid. The good news is that you can write these fees off at the end of the year.

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