March 24, 2022
When traveling abroad one of the key areas that require careful consideration is, the payment options for your purchases. In other words, how would you like to pay for the things that you buy? Traveling overseas requires spending in local currency which could be Dollars, Euros, Pounds, etc. You must also not forget that there is a conversion factor involved while converting Indian Rupees to the respective local currency of your travel destination.
So what are the safe and convenient payment options when traveling abroad? Here are our top 3 choices:
1. Purchase foreign currency as cash: This is probably the most frequently used option. There are multiple vendors that sell Dollars, Euros, Pounds etc, and convert Indian Rupees to your desired local currency. Usually, the margin per Dollar or Euro that one needs to shell out to buy cash lies anywhere between 1.5-2 rupees on top of the official exchange rate. Given an exchange rate of Rs.75 per USD, this would be roughly 1.5-2.5% on top of the exchange rate. One must accurately calculate their budgeted spend abroad to use this option. It has the downside that carrying too much cash could be risky. In addition, buying local currency is not the cheapest mode to buy foreign currency
2. Preload foreign currency in a Forex Card: Multiple banks (like Axis, ICICI, etc.) and other vendors (like bookmyforex) issue Forex Cards that can be pre-loaded with the desired local currency before travel. To load the Forex Card, the traveler must request the bank to load the specified amount and currency type. Documents like visa, passport, and flight tickets are required to process the loading transaction. Pre-loading Forex Cards is significantly cheaper than buying foreign currency in cash though one may need to negotiate with the bank to get a good exchange rate. Typically, the exchange markup would be under 1.5% of the exchange rate. Once loaded these cards are very convenient and can be used like any other debit or credit card without any transaction charges for in-store or online transactions. Cash withdrawal using these cards is charged per withdrawal. Usually, these hover around $3-$5 per transaction. Hence multiple small cash withdrawals can prove expensive. The other issue with these cards is that sometimes they may not be easy to reload while abroad because of documentation requirements. It may not be easily possible to arrange them while traveling.
3. Use international credit cards to spend abroad: This is the simplest way to spend money abroad and doesn’t require any pre-work or hassle before traveling. Simply enable international transactions on your credit card and go. However, the downside is that it can turn out to be the most expensive option in terms of the exchange rate. Credit cards can charge anywhere between 2%-3.5% + GST on top of the currency exchange rate for every transaction made on the credit card. Most credit cards in India usually charge 3.5% + GST for foreign currency transactions. However, there are some credit cards that have lower rates and can be great for your travel spending. Example: HDFC Regalia or Infinia charges 2% above the exchange rate per transaction. If one is a frequent traveler, it is a good idea to own a credit card that has an attractive forex spending rate and I have listed some below for reference. Detailed information on these rates is easily available in RUSSH App which can be downloaded from (https://www.russh.in/russhapp)
The above are samples of foreign currency transactions made via a credit card in Paris, France, and the consolidated Forex Markup fee for all the transactions. There are some transactions that are not shown above for confidentiality but this is an example of how cards report foreign transactions and forex markup fees & GST.
Some credit cards of note that have very low Forex Markup Rates are:
1. HDFC Regalia, HDFC Infinia, HDFC Diners Club, SBI Elite, IDFC First Select etc. All of them have markups between 1.99-2%.
2. IndusInd Bank Legend Card has a Forex Markup rate of 1.8%
3. RBL Bank World Safari credit card claims to have 0% markup
So if we are traveling abroad, we would carry a credit card with a low forex markup rate in addition to any other payment options mentioned above. Primarily to ensure that a high credit limit can be used in case of emergencies or even for normal transactions. One could also benefit from special reward points that are occasionally provided by banks to encourage foreign currency transactions.