How Well Do You Know About Credit Card Foreign Transaction Fee?

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When you travel overseas, whether to carry a credit card, debit card, or cash is a significant question that comes to the mind of every traveler, primarily due to the extent of charges that each of them may incur when used abroad.

There are three types of charges levied when you make a transaction abroad:

Foreign Currency Conversion Fee: This surcharge is imposed for making any purchase overseas, wherein the transaction is conducted in your  country’s currency. In other words, this fee is charged by a foreign merchant on your card to convert the transaction into the currency of your country.

Currency conversion charges are a result of Dynamic Currency Conversion(DCC) or Cardholder Preferred Currency(CPC). Every merchant should seek your permission before using DCC. 

Let's discuss this with an example. Say you are an Indian citizen visiting Malaysia for a few days. During your stay at the hotel, you use a spa service. During the final settlement when you check out of the hotel, you decide to pay for the spa service using your credit card, which was issued in India.

While making the transaction, the hotel authority will give you the option of telling you the bill amount in Rupees rather than Ringgits (so that you don't have to bother converting Ringgits to INR). If you say yes, the hotel authority will pass your transaction through a DCC service provider, and the currency conversion rate will be applied respectively. However, if you say no, your credit card payment network, such as Master, Visa, or Amex will handle the conversion from INR to Ringgits, and the amount paid will automatically reflect in Rupees on your statement.

Credit card payment network providers levy a charge of 1-2% at max, which is lesser than DCC rates, which may cost you around 3%. Please note that currency conversion charges are not shown separately on your credit card statement; instead, they are added in the total amount paid at the point of sale.

Credit Card Foreign Transaction Fee:  It is referred to as the fee that your card issuer levies on a transaction that takes place in a foreign country. The foreign transaction fee lies between 2.5-3.5% of the total transaction amount.

Cash Advance Fee/Withdrawal Fee: The charge levied on the transaction when you withdraw cash overseas through a credit card, is known as a cash advance fee. Withdrawal of money abroad through a debit cards incurs withdrawal fees as well.

Foreign Transaction Fee

This is an interchange fee that you have to pay when you carry out a transaction overseas, even if it is for a nominal amount. It involves a three-way arrangement between the bank, the network provider of your card(Visa/Master), and the merchant, which enables your bank to deduct a certain amount from your account on each foreign transaction. 

Foreign Transaction Fee in India

Usually, network providers such as Visa and Mastercard charge a fee of 1%, but banks in India add an extra percentage to it; making it around 3-3.5% when you use debit or credit cards abroad.

Some banks claim to offer travel credit cards that don't charge any foreign transaction fee, but this is a false claim. As per the agreement between banks and the network providers, you will have to pay the foreign transaction fee. 

Forex Card or Prepaid Travel Cards - A Solution to Credit Card Foreign Transaction Fees

Forex cards don't levy a foreign transaction fee, and charge only a minimal ATM withdrawal fee. They are the most recommended form of carrying currency while traveling abroad.

Forex cards are pin-protected and can be easily replaced if stolen or lost. Prepaid travel/forex cards are available at better rates when compared to traveler's cheques and currency notes. They can be reloaded quickly and at any time.

You can save up to 2-5% on transaction fees by using forex cards, as compared to international credit or debit cards. Forex cards are also beneficial because they are not susceptible to changes in currency conversion rates and carry currency at a fixed price.

They also come with an insurance cover, and all hotel establishments accept forex cards without levying any charge.

In a Nutshell

Do in-depth research before buying any card. Check out the features, benefits, and hidden credit card foreign transaction charges levied by the issuers and network providers. Don't forget to check your credit score before applying as well.

If you are purchasing a forex card, then buy it ahead of your travel plan as it can take up to 24-72 hours to load it with currency. Happy Traveling!

 

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