Prepaid forex card is the cheapest way to shop abroad
It is summer and perhaps you are packing your bags to leave for your favourite holiday destination. You have made all the travel arrangements but might want to know about the travel cards or pre-paid forex cards that are gaining popularity. Here's a low-down on what is on offer and the best way to use it as you cross the seas.
What is a prepaid forex card?
It is a foreign currency card which can be preloaded with foreign currency — by paying it in rupees back home. Usually the minimum is about $200 or €200 and reloading in similar multiples. Later, these cards can be used for shopping at merchant outlets or withdrawing cash from ATMs. These cards can be loaded with single currency or multiple currencies.
Popular single currency choices include the US dollar, pound sterling and euro. Multiple currencies-based travel card has an even bigger list of about 15 currencies. Multi-currency card is especially useful if you are travelling to multiple destinations. Sometimes, travellers opt for US dollars even if they are not travelling to the US. They should know that while it is a good back-up (as US dollar is accepted in most countries), it also entails conversion costs (around 3.5 per cent) when the US dollar is converted to another foreign currency. Forex prepaid cards, however, are not valid in Nepal, Bhutan and India. While the card can be used for making payments via the web, it needs prior activation from Visa or MasterCard.
The card user has to be aware of charges levied by banks, which are usually similar. Joining fees is between ₹100 and ₹150 for HDFC Bank, ICICI Bank, SBI and Axis Bank. Charges for euro withdrawal from ATMs as well as balance enquiry are the same for all the four banks at €1.5 and €0.5, respectively.
Alternatives – a comparison
If one compares the applicable foreign currency conversion rates, forex cards are slightly costlier (around 2 per cent) than credit cards. This is possibly because of the wholesale rates offered by Visa or Mastercard to its credit card users (leading to a saving of about 2 per cent).
But then the credit card issuer also charges mark-up fees in the range of 2-3.5 per cent of the transaction value — which nullifies the benefit earned from its favourable forex conversion rate.
Moreover, cash withdrawals via ATMs entail additional fee of 2.5 per cent of the amount withdrawn or a flat fee of $7.5 — whichever is higher for Citibank customers.
Traveller's cheque, which has similar foreign currency conversion rates, in turn, has the issue of being accepted only in select outlets unlike a prepaid card.
Additionally, it has signature-based security as against pin-based security (which is superior) offered by forex cards. More importantly, forex card holders can shop for the exact value they want.
Cash, while convenient, also gets unfavourable currency conversion rates compared with a travel card and carries the risk of being stolen.
So, on an overall basis, prepaid card appears to be the best option. To save on charges, go for bulk ATM withdrawals. Check balances via the web to save on ATM charges.
Moreover, customers should use the card directly at merchant outlets (POS) rather than withdraw from ATMs to make payments. This can help them save on ATM withdrawal fees. Be aware that many foreign banks (say, in the US) have the right to levy additional fees for using their ATMs.
If you are shopping abroad, some merchants might ask you if you would like to be billed in rupees instead of dollars or euros. This is known as dynamic currency conversion (DCC).
Experts advise against going for such conversion as the conversion rates applicable on such transactions are usually not favourable for the purchaser. Instead, it would be better to ask the merchant to settle the transaction in the currency loaded on your pre-paid forex card.
While loading your card, be aware of the limits set by the RBI for foreign travellers — which is $2,50,000 per financial year.
Once you complete your travel, according to law, you have to reconvert the forex back to rupees within six months.
You are allowed to keep up to $2,000 of foreign currency balance in your forex card, according to rules.
Your card usually comes with travel insurance. Check what you get, before you buy separate travel insurance. Also, it is advisable to go for add-on cards — as a back-up if the original card gets lost or turns out to be faulty.
Not the least, loss of card should be reported immediately to avoid further liability on the card. You could also temporarily block your card via internet by logging on to your account or by calling the call centre of the card issuer bank back home.
A few may even provide local international numbers. Be sure to store them in your mobile.
While using ATMs abroad, ensure that you activate your international roaming on your phone. This will enable you to keep track of withdrawals and to get alerts by way of SMS.
Some cards also come with an embedded chip — in addition to a magnetic strip — for additional safety.
Such chips store confidential information in encrypted form, assuring higher level of security. Go for it, if you are wary of frauds.
(This article was published on June 5, 2016)
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