Use forex cards in volatile times

It will ensure that your budget does not go haywire if there is a sharp depreciation

With the rupee hitting a new low almost every week, travelling abroad has suddenly become an expensive proposition. Worse still, if you were abroad when the currency hit the panic button in August, your finances would have gone completely haywire. The rupee fell by 8.85 per cent or Rs 5.34 against the dollar in August.     

In times like these, when the currency is highly volatile with a downward bias, it makes sense to use forex cards while travelling abroad. A forex card is a prepaid card which you can load with the currency of your choice and use it to swipe when you travel overseas. The advantage: The forex card’s exchange rate is locked on the day of purchase. So, if the currency were to fall sharply during the travel, it won’t hurt your expenses such as, local travel, eating out, sight-seeing, shopping etc in a foreign country.

While the more popular form of making payments are credit or debit cards. But, it would mean higher payment because of the falling currency besides the conversion rates of 2.5 per cent to three per cent. “In addition to this, there is an interchange fee as well. But using a travel card you can lock in the exchange rate and there are no other charges. So, you will have absolute clarity on charges,” says Mahesh Dayani, country head, retail assets, ING Vysya Bank. If you want to use your credit/debit card for about Rs 100,000, you will have to need to spend another Rs 3,000 or so as conversion charges.

However, one must remember that a forex card can also hurt when the currency is appreciating.  If the rupee appreciates after you have loaded your card, you will be at a loss. Also, if you have unused amount in the card, you will be paid back according to the locked exchange rate, and not the existing one.

That is why such cards make more sense in a depreciating currency situation. Most banks today offer foreign currency travel cards. Some banks even offer the option of loading multiple currencies on a single card. ING Vysya offers a multiple forex card in four currencies. Axis Bank recently launched a co-branded travel card for students, jointly with International Student Identity Card (ISIC).

There are other issues with debit and credit cards as well. As Adhil Shetty, CEO of bankbazaar.com discovered on his recent foreign trip that the debit card had a certain withdrawal limit, lesser than the domestic limit. It’s the same case with credit cards. If you don't inform your card issuing bank that you are travelling overseas, it may be blocked after a couple of swipes.

Charges	Forex Card*	Credit Card**	Debit Card***
Issuance Fee	Rs 112-350	Zero to Rs 1500	Zero to Rs 500
Cash Withdrawal Charge	$1.5 to $ 1.75 or equivalent in other currency and 2% of withdrawal	2.5%-3% of withdrawal or Minimum Rs 250-Rs 300	A cross-currency mark-up of 3.5% or Rs 110-Rs 150
Re-load fees	Rs 56- Rs 100	NA	NA
Balance Refund	If Balance > $5 or minimum stipulated amount in other currency	NA	NA
Annual Fee/Deduction on Expired card#	$ 5 annually or stipulated amount in other currency	Zero to Rs 500	Rs 100 to Rs 500
Transaction Charge	NIL	A cross-currency mark-up of 3.5% on purchase transacion	A cross-currency mark-up of 3.5% on purchase transacion
Forex Buying Selling Spread	approx $3.5 to $ 5	NA	NA

^{Data as on Sep 2, 2013
Source: Bankbazar.com}

Note:            
Data Reference from:            
*SBI Vishwa Yatra foreign Travel Card, HDFC Forex Plus platinum card, Axis Bank Travel Currency Card, ICICI Bank            
**AXIS Easy Credit Cards, SBI Advantage Plus Card, HDFC Debit Card
***Axis Bank Debit Card, SBI International ATM cum Debit card
#Any amount less than this will be forfeited at the end of the year. If you reload the card it will get added to the amount