Youâve recently returned from a business trip overseas, and after reviewing your credit card statement, you notice every charge is slightly higher than expected. Whatâs going on?
If youâve already accounted for the exchange rate, then the extra cost could be due to foreign transaction fees. During a week-long business trip that includes a hotel, transportation, and meals, these fees can quickly add up. If international travel is a regular part of your business, the total cost can accumulate to a significant amount each year.
The good news is that there are some easy ways to avoid foreign transaction fees, including using the right credit card. Hereâs what you need to know about these fees, how to remove them from the equation, and how to assess the total value of your business travel credit card.
What are foreign transaction fees?
When you use your credit card in another country, you may be charged a foreign transaction fee. This is a charge for converting your money from another currency into Canadian dollars, and itâs added on top of the exchange rate. Transaction fees add an extra 1% to 3% onto the international purchase.
How to calculate foreign transaction fees
For example, say you travel from Canada to the United States for a client meeting and spend $1,000 on hotel costs.
- Convert your purchase to Canadian dollars. Letâs assume the exchange rate is 1 USD to 1.35 CAD, so your bill becomes $1,350 CAD.
- Add the foreign transaction fee. If your credit card charges a foreign transaction fee of 2.5%, then $1,350 x 2.5% = $33.75.
- Calculate your total cost. $1,350 + $33.75 = $1383.75.
While you focus on trying to manage the larger fees of flights and hotel bookings, the foreign transaction fees may go unnoticed. But over time, these small fees can start to add up. Learning how to avoid these fees is an easy way to reduce business travel costs.
How to avoid extra fees
If you want to reduce the cost of international purchases when you travel for work, you have a few options:
Pay with local currency
When youâre overseas, the payment terminal might ask if youâd like to pay in Canadian dollars or the local currency. While paying in Canadian dollars might seem most convenient, it can also cost you more, as the business may charge an extra exchange rate, known as a dynamic currency conversion (DCC).
This is a service where the retailer converts the transaction at their own exchange rate, typically above the market rate. In this case, you could end up paying both a marked-up conversion rate and your cardâs foreign transaction fee. To avoid this cost, always choose to pay in the local currency.
Choose a credit card with no foreign transaction fee
One of the easiest ways to save on foreign transaction fees is to avoid them in the first place. Many business travel credit cards donât charge foreign transaction fees. These cards can help to minimize costs on international business purchases, and might also offer rewards or travel benefits.
Assess the total value of your credit card
When evaluating a business travel credit card, thereâs more to consider than whether it has foreign transaction fees or not. To find the card thatâs right for your business, assess the total value of what the card can offer against what it costs.
For instance, does the card come with an annual fee? Does it offer premium benefits like travel rewards and travel insurance? If you use these benefits regularly, you can quickly offset the cost of the card. Also consider features like the earn rate, welcome bonus, and other travel or business perks.
Maximizing the value of your business travel
Managing foreign transaction fees is key to keeping business travel costs downâso compare how much you spend abroad, always pay in the local currency, and choose a card that fits your needs, prioritizing one that offers savings and rewards for your specific business spending needs.
Media Contact Information
Name: Sonakshi Murze
Job Title: Manager
Email:Â sonakshi.murze@iquanti.com
