Travelling abroad this festive season? Here's how you can manage foreign currency effectively

Pavan Kavad, Managing Director of Prithvi Exchange (India) Limited recommends, besides forex card, it’s smart to keep some cash in hand, about $100–150 in the US or €100 in Europe. This cash buffer, around 10-15 percent of your total budget, covers essentials such as taxis or street vendors that do not accept cards.

Reserve debit or credit cards for emergencies, such as hotel deposits, to escape their hefty fees. “By prioritizing forex cards for daily expenses, travelers will end up with savings,” says Malhotra.

Aware of transaction fees on cards

Using cards can come with many fees, but being aware can help you avoid most of them.

According to Malhotra, biggest fees on debit and credit cards, on top of foreign transaction charges, are dynamic currency conversion (2–8%) and ATM fees (up to Rs 500 per withdrawal), both of which should be avoided. Dynamic Currency Conversion (DCC) happens when a merchant offers to charge you in your home currency. Malhotra advises, "Always decline this and pay in the local currency to get better rates. Similarly, use ATMs sparingly and withdraw larger amounts at once to minimize repeated fees." For example, withdrawing $150 once is far cheaper than withdrawing $50 three different times.

Kavad adds, "If you need to swipe your debit or credit card while traveling abroad, always choose to pay in the local currency instead of INR."

Limit card swipes to scenarios where rewards justify the costs, like earning cashback on big purchases. For routine expenses, stick to forex cards or cash.

Forex cards vs. cash and credit: Weighing the trade-offs

According to Malhotra, forex cards strike the ideal balance between safety, convenience, and cost. They offer zero-markup interbank rates, locked-in exchange rates, and zero issuance, reload, unload, or annual fees. With app-based instant reloads, they offer security and allow multi-currency access.

Kavad adds, "Forex cards locks in the exchange rate and works like a debit card for swipes or ATM withdrawals." Drawbacks include potential ATM fees ($2 to $4) per transaction and replacement hassles if lost.

In contrast, cash excels in universality—"carrying cash is handy for small payments," notes Malhotra—but it's expensive during conversion, carries theft risks and is cumbersome.

“Credit cards offer reward points or cashback, useful for hotel or rental car deposits," says Malhotra. Yet, drawbacks abound — up to 3.5 percent mark-up fees, Rs 500 for ATM withdrawal charges, and DCC pitfalls, plus risks like blocked funds from overspending.

Forex cards should ultimately cover core spending, cash should cover sundries, and credit cards should serve as an emergency tool to form the winning trio.

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Shielding your budget from exchange rate swings

Currency volatility can erode budgets overnight, but proactive locking is the solution. "The most effective strategy is to use prepaid forex cards," Malhotra asserts. He also says that loading a forex card with foreign currency fixes the exchange rate at that moment, which protects you from losses. Abandoning fluctuating credit/debit cards prevents daily rate hits.

Kavad illustrates, "If you load $2000 on a forex card when the rate is Rs 82 per dollar, you’ll spend at that rate even if the dollar rises to Rs 85 later."

Pre-trip buys at favorable rates amplifies savings. For instance, BookMyForex's "Rate Alert" notifies on target rates, while "Book Now, Pay Later" freezes them with a refundable deposit. Multi-currency forex cards or zero-markup cards further minimize erosion, ensuring your funds stretch further.

Pitfalls to avoid in overseas exchanges

Exchanging abroad brims with traps for the unwary. Malhotra warns of unfavorable exchange rates and hidden fees. Many exchange shops hide their profits in a very poor exchange rate loaded with markups as high as 10 percent. Steer clear of airport or tourist-spot vendors promising "zero commission"— they're illusions. Unofficial changers risk scams, counterfeits, or sleight-of-hand shortchanges; always count cash at licensed counters.

ATM skimming looms large, so it’s recommended to use bank-interior machines and avoid using ATMs located at remote places.

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Pro tips for effortless travel finances

Malhotra urges app-linked cards for tracking your spending and checking balance on the card. Plan to spend accordingly to avoid declined transactions.

You can also generate virtual cards through the app for safer online shopping.

Kavad advises carrying a backup forex card, in case of loss or malfunction of only forex card you have.

Keep copies of important documents like passport, visa, and card details separately for emergencies. “Check if your card supports multiple currencies, which is useful if you’re visiting more than one country,” says Kavad.

Lastly, compare exchange rates and fees across providers before purchasing a forex card, even small differences can add up for longer trips or high spending.