With the Indian rupee appreciating against the US dollar, Euro and some other currencies over the last few months, you will have higher purchasing power for discretionary spends when travelling abroad this summer. But how should you spend this money? Should you swipe your credit or debit card or use cash instead? Given that using a card involves the risk of fraud and high charges, carrying cash seems the better option. But carrying too much cash is not safe either.
A possible solution could be carrying some cash, and loading the rest on a forex card, which work like prepaid debit cards. Forex cards, which can be used for transactions as well as cash withdrawals while travelling abroad, lock in the exchange rate at the time of loading.
“What we have noticed is that people are carrying about 90% of their forex requirement on forex cards and the remaining 10% in cash, which is a good strategy. If your card gets lost, they (someone who finds or steals it) will not be able to use it because it needs a PIN. But if you lose your cash, it is gone,” said Karan Anand, head, relationships, Cox & Kings Ltd, a tour and travel company.
We tell you where to get your Indian rupee exchanged for foreign currency for your cash requirements, and the benefits of forex cards over other options.
Once you have decided how much forex you want to carry in cash, do not leave the currency exchange for the last minute, thinking you can do it at the airport. You may not get the best deals there, especially during peak holiday season. “People operating the exchange counters at the airport know that you are desperate to exchange currency. So they will charge a premium. It is always better to plan in advance and get it from an authorised forex dealer before embarking on a trip,” Anand said.
However, expect the rates for exchanging cash to be somewhat higher than the rate for loading a forex card, even if the transaction is done around the same time. In other words, you may get less forex in cash and more on the forex card when exchanging your Indian rupees.
Nitin Motwani, co-founder and chief technology officer, BookMyForex, an online currency marketplace, said that the difference in terms of prices is quite significant as physical currency is in short supply during summer. “The currency rates are higher than card rates by as much as a rupee. This higher demand does not affect the rates that you get on forex cards because a forex card is a pure banking product,” he said. This means there is an unlimited supply of forex through cards as there is no physical currency involved. The forex card rates are very close to interbank rates, said Motwani.
You can use online tools such as Bookmyforex.com, Currencykart.com and Fxkart.com to compare prices instead of calling every currency dealer around you to find out the best rate. However, if you are a premium customer of a bank, you may get a better price at your bank itself. “But banks offer better exchange rates to very few people. When they do, it is because either you are a premium customer or they are trying to cross-sell some other product,” Motwani said.
The biggest advantage of using a forex card is that you know the exact exchange rate that you have been charged. This can help you draw up a budget for your holiday. Whereas, if you use a credit or a debit card for a transaction abroad, you get to know the conversion rate later.
Moreover, credit and debit cards charge a foreign currency mark-up for non-rupee transactions. It is the fee charged for using a rupee-denominated card for transactions in other currencies, and is usually in the range of 1-3.5%. For instance, your bank may charge $2.5-3 if you make a $100 transaction on your credit or debit card. Remember that the lower rate is available only on premium credit cards.
Most forex cards are dollar- or eurodenominated and, therefore, there is no such mark-up. However, if you use a dollar-denominated card in Europe, you may be charged extra.
Forex cards score higher on cash withdrawal from ATMs too. While most credit and debit cards will charge a foreign transaction fee for an ATM withdrawal abroad, this fee will not be applicable in forex cards. However, there could be a fee levied by the ATM operator which will have to be borne by the card holder, irrespective of whether the card is a credit, debit or forex card. Some banks and forex companies tie up with ATM operators abroad to waive off such fees for some of their customers.
In many European countries, the ATM transaction fee is zero, an it is about $2 in the US, said Motwani. “But in exotic tourist destinations and on places like a cruise ship, this fee can be as high as $7 for any type of card. The advantage of a forex card is that you are sure about the conversion rate and there is no other mark-up,” he said.
It is always good to carry your forex requirements in a card because it is safe, Anand said. “Another benefit of using a card is that you do not come back with loose change. At most of the tourist places, even smaller shops and hawkers accept cards now,” he said.
If you are travelling abroad this summer, plan your foreign exchange requirement in advance, and don’t get stuck with expensive, last-minute deals.