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Why you should carry forex prepaid card instead of credit card while travelling abroad

A big decision to make while travelling abroad is how to carry the currency you will be using there. Which of these should you carry: cash, credit and/or debit cards, traveller's cheques, foreign exchange (forex) card? And, in what mix? A lot of people assume that along with cash, a credit card is something they should carry when travelling abroad. However, using a domestic credit card can abroad be a costly affair.

This is where a forex card can come in handy - it is a more convenient and inexpensive alternative to the credit card. Sudarshan Motwani, Founder and CEO, BookMyForex.com said that even international credit cards issued by domestic banks come with added markup fee on the foreign currency exchange rate along with the foreign transaction fees. "You can easily end up paying 6 percent or even more after adding all these fees. In case of forex cards these fees can be 0 in some cases," he said.

What is forex card?
A forex or prepaid travel card is a pre-loaded card that allows you to access money in a foreign currency. The card can be loaded with one or multiple currencies; some let you load up to 15 currencies. It allows you to withdraw cash in foreign currency, check your balance and pay for shopping in foreign currency. You can also top up the card depending on your requirement. These cards are offered by banks and even companies like American Express and UAE Exchange and Financial Services.

Here is how a forex travel card scores over a credit card.

1. Protection from volatility in forex rates
In the case of forex cards, the foreign exchange conversion rate is locked as soon as you load the money in to it. However, in the case of a credit card, the rates are applied at the time of the transaction, i.e., when you swipe your card. Therefore, whatever the prevailing rates are at that time will get applied along with other transactional charges.

Motwani said that once the forex card is preloaded with the currency of the destination country, the exchange rates are locked-in instantly. A forex card gives customers protection from future currency rate fluctuations. However, if you are transacting using your Indian credit card abroad, you will be vulnerable to rate volatility. He said, "Your holiday budget can go haywire if there is any substantial fluctuation during your foreign trip, which is happening often nowadays as a result of global and domestic economic instability." In case of forex card, one knows the exchange rate at the time of loading the card and calculate the cost of forex so loaded at that time itself.

2. Minimal foreign currency mark-up fee
When you transact using either a credit card or forex card abroad, you will be charged a price over and above the actual transaction value, known as mark-up fee.

Sahil Arora - Director & Group Head, Investments, Paisabazaar.com said that swiping a credit card abroad costs cross-currency mark-up fee of 2-3.5 percent of the transaction value whereas forex cards do not incur this charge as long as the card is used within the same currency jurisdiction for which it is loaded. "However, if a forex card is swiped outside the currency jurisdiction, cross-currency fee of up to 3.5 percent of the transaction value is charged," he said.

To avoid incurring mark-up fee, in case you are travelling to multiple countries, opt for multi-currency forex cards as it allows users to load money in multiple foreign currencies in the same card.

Pranay Jhaveri, Chief Business Officer, Euronet Services India, a Mumbai-based fintech company, said that issuers also allow migration of funds between different currency wallets on a multicurrency forex card if funds in the wallet of a particular currency are exhausted. "However, the issuer decides whether to enable this functionality for you," he said.

3. Lower ATM withdrawal expenses
A credit card is an expensive way to spend. Now, one thing you need to keep in mind while using your credit card abroad is that it is primarily designed to work only in the currency of the country it has been issued in, that is, domestically. However, when you go abroad and use it to withdraw cash, your bank charges you for that foreign transaction.

If you use your credit card to withdraw foreign currency at an ATM abroad, along with paying interest charges, you will have to pay the foreign currency transaction fee and withdrawal fee (also known as cash advance fee). Cash advance fee is a fee that your card issuer agrees to pay to the issuer whose ATM machine you have used to withdraw money abroad.

Arora said, "Making ATM withdrawals through credit card in foreign locations will cost you cash advance fee of up to 3.5 percent of the amount withdrawn, along with interest charges of up to 49.36 percent per annum and the foreign currency transaction fee of up to 3.5 percent of the transaction value. On the other hand, ATM withdrawals through forex cards incur cash withdrawal fee, which is generally a fixed amount per transaction and much lower than the cash withdrawal fee charged on credit cards."

4. No late payment charges applied
Unlike forex card, which is a prepaid card, if you don't pay your credit card bill on time or even pay it partly, you'll have to pay a late fee and interest at high rates on a monthly basis until the entire outstanding amount is paid.

Also read: How interest on credit card due is calculated
Also Read: Why paying the minimum amount due on credit cards can make you fall into a debt trap

5. No need to pay forex conversion charges

When you transact using a credit card abroad for transaction purposes, the Indian currency gets converted to foreign currency and you will be charged a forex conversion fee for every transaction.

Generally, no forex conversion charges are applied when you pay money through forex card abroad. This is because your currency gets converted at the time you load the forex card before you leave the home country, India. Forex cards are preloaded with foreign currency. So, every time you swipe your forex card abroad, your spending is done in foreign currency and not in Indian currency. However, the issuer charges a fee for re-loading currency in forex card.

For instance, reloading fee for Axis World Traveller forex card is Rs 100, HDFC Bank Multicurrency Forex Plus Card is Rs 75 and SBI Multicurrency Foreign Travel forex card is Rs 50. Many issuers do not charge for re-loading of forex when it is done online. For example, you do not have to pay additional charges for re-loading forex in Standard Chartered Multicurrency Forex card online.

Jhaveri said once the prepaid travel card gets loaded with forex, one does not have to worry about the conversion charges anymore. However, there are other charges that are decided by issuers based on their product offering. These could be card issuance and reload fee, card replacement fee, the fee for ATM cash withdrawal, balance enquiry, cross-currency mark-up etc. The charges are up to the discretion of the issuer.

6. Forex cards are cost-effective
When you buy a forex card, you are being charged an issuance fee (which is the cost of the card). And, when you buy a credit card, especially for travelling abroad, you need to pay a joining fee and annual fee/renewal fee.

Arora said, "Forex card does not come for free, the issuer charges an issuance fee when you buy it. For instance, the cost (issuance fee) of Axis World Traveller forex card and HDFC Bank Multicurrency Forex Plus Card is Rs 500 and SBI Multicurrency Foreign Travel forex card is Rs 100. On the other hand, credit card issuers also charge a joining fee as well as annual fee. For instance, joining fee and annual fee for Axis Bank Vistara Credit Card is Rs 1500 and Rs 1500, for HDFC Regalia First Credit Card is Rs 1000 and Rs 1000, for SBI Card Elite Credit Card is Rs 4,999 and Rs 4,999, respectively."

It's not that credit card always comes up with such a huge cost. Generally, the credit card joining fee varies from Rs 500 to Rs 5,000, also some of the issuers do provide credit cards for free. However, the additional services offered to you may vary from the type of credit card you have selected as per the feature and pricing. While most issuers of credit card also charge you an annual fee, this fee can be waived off if you use your credit card on a regular basis and achieve a minimum benchmark spending, as per the issuer's norms.

Similarly, you do not have to buy a new credit card for travelling abroad. You can use the same/existing credit card everywhere, whether you are abroad or in India. Credit cards usually expire within 3 to 5 years, as per the issuer's norms. Hence, you must check the expiry date before taking your credit card abroad.

Forex card, on the other hand, has limited usage, it is only used for doing transactions abroad. Further, the forex card expires within 3 to 5 years. The expiry date differs from issuer to issuer. Hence, you should unload the forex card once you are back in India if you are not planning to go abroad before the card expires. The prevailing exchange rates and nominal unloading fee is applied when you unload the forex card.

Also read: Things to know before buying a prepaid forex card for your international holiday

Advantages and disadvantages of forex card and international credit card
Product

Advantages

Disadvantages

Forex Card

*No currency conversion charge as the card is pre-loaded with the foreign currency

*Most economical option– Available at minimal mark-up

* Accepted at all merchant’s establishments where Visa and Mastercard are accepted

* Zero foreign transaction fees

* Transparent exchange rates

* Forex cards are safe as they are chip and PIN enabled

* They come with insurance cover

* Can be easily reloaded

* Available only in 15-20 foreign currencies.

*Expensive if used in a currency that is not loaded on the card

International Credit Cards

*Accepted almost everywhere

* Convenient to use as you already possess the card

* Credit/ debit cards are safe as they are chip and pin secured and may come with an insurance cover

*Most expensive option to use

* All transactions incur average foreign transaction charges of 3% to 5%, depending on the issuer/ country where it may be used

* Since they are INR cards, currency exchange rates are not fixed and are opaque. The rate will vary for each transaction

Source: BookMyForex.com


What you should do
The prepaid travel card scores over the credit card in many areas; it is safe, and transaction charges payable on it are much lower. However, experts say that you should not carry all your forex currency in the prepaid travel card.

Ritesh Pai, Chief Digital Officer, YES Bank said, " You must carry a multi-currency forex card when you travel out of the country. These cards can be used even for multiple trips. If you take a multi-currency forex card abroad, charges get reduced to a wider extent as currency rate is already fixed. Also, when you travel to multiple countries the card has the intelligence to debit the right currency and hence not pay charges on the cross currency."

He added, "You must keep a mix of forex card and cash/credit card in the ratio of 70:30. However, you must keep your credit card as a back-up option in case you run out of cash or have exhausted your multi-currency forex prepaid card."
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