There are several options available for a tourist to incur expenses in foreign currency(forex in short), the most common being cash, credit card and Forex card. Other options include traveller’s cheques and debit card.
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Additional steps and precautions required
Forex conversion costs can be significant
Buying foreign currency or incurring an expense in foreign currency implies a certain cost in Indian Rupees(INR). This hidden cost can become quite significant if the foreign travel lasts longer. I say hidden because conversion costs do not really form part of the travel budget. Consider a travel budget of INR 5 lakhs, all in foreign currency. A 1% cost of conversion would mean a sum of INR 5k, while a 3.5% cost would be INR 17.5k. The differential of INR 12.5k plus GST @18% =INR 14.8k may be a small amount relative to the total spend but good enough to pay for a good quality accommodation for 3-4 nights.
Overview of popular options
Here is a summary of the popular options used by Indian travellers for incurring expenses during foreign travel and my preferences. The rates indicated are approximate and exclude GST normally levied @18% on the fee amount.
Credit cards
Premium credit cards that charge upto 2% Mark-up fee are very competitive as you get a free credit period of 15-45 days plus reward points. In my case, I get ~INR 1.6 for every INR 100 spend as reward, further reducing the net mark-up to 0.5%. The actual conversion cost normally happens to be marginally less than bank TT selling rates. This is my preferred option and in my opinion, better than Forex cards.
But credit cards that charge 3.5% Mark-up(excluding GST) are relatively expensive and may be avoided. Instead, consider taking a Forex card or carry cash if accommodation is all prepaid.
Check these four important terms for credit cards
a) The tariff sheet – for the Mark-up fee on foreign currency transactions. Also the ATM withdrawal fee plus cash advance fee/interest for awareness and emergency usage(all ATM withdrawals are treated as cash advance).
b) Understand how the foreign currency transactions will be converted to INR. The credit card associations(say MasterCard/Visa) determine the rates at which foreign currency transactions will be converted to INR. These rates are available on their websites and can be verified with the card statement. What is unclear is whether the card issuing bank bills the credit card holder at the same rates or at rates they have determined which would be higher? Some banks make it clear in the terms and conditions(e.g. SBI) that card holders will be billed at Visa/MasterCard rates only. Others leave it vague. But the Mark-up fee is always indicated separately in the card statement.
c) Check if there a Mark-up fee if the card is charged with INR under Dynamic currency conversion.
d) Compute approximate monetary value of reward points on forex. For instance, if you get 2 reward points for every INR 100 spend and you can get a gift voucher of INR 500 with 1000 reward points, then effectively, you are getting INR 1 for every INR 100 spend. You can then compute the net cost.
Forex cards
a) Forex cards can be very useful if your credit card charges 3.5% Mark-up fee(excluding GST) or you are a frequent traveller- making 3-4 trips at the minimum requiring multiple currencies. Forex card works best when the currency of destination(s) is available. If not, cross currency charges have to be incurred(~2%+), and that makes this card a bit uncompetitive as compared to a premium credit card.
b) There will also be a charge for ATM withdrawals which is normally ~USD 2 per USD withdrawal (varies by currency). Again, the currency you are withdrawing should be available on the Card, else additional charges will apply.
I have evaluated forex cards in detail and concluded that I am better off with my premium credit card.
Debit cards
For ATM withdrawals, most debit cards will have 3.5% Mark-up fee plus ATM withdrawal fee(say INR 130). Swiping at a PoS entails a 3.5% Mark-up. Makes it more expensive relatively. Best to avoid usage but I carry it as a back up.
In an emergency situation, if at all any money is required to be withdrawn abroad, a debit card would be less expensive than a credit card.
Traveller’s cheques
Rates are similar to that of Forex card. But there can be commission for encashment(varies, can be 1%, 2% etc. depending on the exchange service provider). Can be very useful to carry if travel extends to few weeks or months.
Cash
Can’t do without it. The risk of losing cash is surely overstated to push other products. Issue cost is ~1% higher than Forex cards.
Summary of my preferences
In summary, this is what I would suggest.
a) Carry some cash. I normally carry upto USD 300-500 or equivalent per person, based on estimated costs to be incurred and the destination. Compared to banks and travel agencies, private online players such as buyforex, bookmyforex etc. offer competitive rates. Rates do vary and hence, I do a quick check on 2 or 3 websites before ordering.
I normally spend all the cash and only bring back local currency small coins/notes as souvenir. But for any reason I am unable to spend all the cash, I convert and bring back cash in major currencies such as USD or Euros.
b) Carry one credit card with Mark-up fee no more than 2% and no premium on currency conversion rates determined by Visa/Mastercard/Amex. Be aware of the key relevant terms.
c) Carry another credit or debit card as back up.
d) Avoid Dynamic currency conversion if you are unsure of the conversion rate.
More on Forex cards
Just like credit cards, a simple product like a forex card has been made very complex to understand and evaluate.
What is good
1. The currency is issued at rates that are ~1% lower than cash rates.
2. Some of the premium forex cards have rewards program and also waive conversion/ATM withdrawal charges. But the issue cost is higher.
3. Can be recharged while on travel. Access to secure internet is required.
4. Multiple currencies can be loaded. Most larger banks offer more than 20 currencies.
5. There is no cost for swiping at a PoS in the currency of the destination.
What is not good
1. Forex cards can be complex with several associated charges on issue(INR 300 +), Loading/reloading (INR 100 each time), renewal(INR 100+), ATM withdrawal(~USD 2 each time-varies by currency), cross currency(2% +), inactivity(INR 100) and so on.
Many of these costs are sometimes waived off, either by private online money exchange players or banks. Assuming you take a card from a private player, the 2 most relevant direct costs are ATM withdrawal cost and cross currency conversion cost.
2. Upfront investment is required.
3. Possibility of loss if the unspent balance is surrendered.
How the forex rates differ in India
The Indian forex market is complex, with each dealer offering different rates. Though I stick to private money exchangers, I still make a comparison each time I buy forex. I have compiled the forex rates for US Dollars as of a recent date. These are selling rates meaning the rate you will pay to buy.
| Conversion rate | TT selling | Cash | Forex card | |
|---|---|---|---|---|
| Bank | 75.99 | 76.73 | 76.21 | |
| Private exchange | 75.07 | 74.82 | ||
| Visa | 74.41 | |||
| MasterCard | 74.56 |
There is almost 2% difference between the Visa/MasterCard rates and the Bank TT selling rate. That is why it is important to check with your bank how the card holders are billed for foreign currency transactions.
Additional steps and precautions required
- Remember the PIN of all the cards you carry.
- Remember the internet banking and phone banking user ID/PIN/password as also the card issuing bank’s 24/7 phone numbers for services such as blocking a card.
- Activate international roaming on your registered mobile number. Check text messages received from the bank on card usage to keep track of both authorized and unauthorised transactions. It may be too late if you check these after returning to India. I have had few instances of incorrect debits(not fraudulent though) which I could point out to the hotels immediately for reversal.
- When booking hotels from India, check the destination’s local currency rate also in addition to INR rate. On the basis of the conversion rate applied, you can decide whether to opt for INR payment or not.
- The above may also apply for domestic flights/train tickets in foreign countries though all airlines/train operators may not give the INR option.
- This is optional but if your bank provides this facility, update international travel details through internet banking for credit and debit cards you intend to carry.
What is Dynamic Currency Conversion?
At times, the PoS or ATM may provide an option to be charged in INR(something called Dynamic Currency Conversion(DCC) and activated by local banks/merchant)- the general advice is to say no because the net conversion rate would be much worse. But I always check the conversion rate offered and ascertain if it is reasonable. At a duty free shop in an international airport, I was once given a very reasonable rate and I chose to pay in INR. So DCC need not be rejected outright.
DCC cannot be applied automatically. The card issuer in India will normally not charge any fee on INR settled transactions but better to be sure.
GST – Goods and Service Tax
There is GST on fees and charges levied as well as exchange of currency. The costs indicated above will be higher to that extent.
Relevant Reserve Bank of India(RBI) rules – per person
Amount that can be taken in a year USD 250,000 (Note this is the total limit for all current/capital account transactions without prior RBI approval)
Maximum amount in cash – USD 3k per trip
Maximum that can be retained upon return – USD 2k
