In this Digging Deeper - Freedom Week edition podcast, Moneycontrol explores the financial freedom to embrace the wanderlust in all of us.
As bucket lists get crowded with unexplored destinations, travel has become the new social media humble brag and in many cases, a much needed respite from all things virtual.
But the excruciating planning that goes into getting the final details right before you can give in to the wanderlust, often leeches the joy from the proceedings.
Because, let us face it, in the over-digitised world we live in today, you cannot backpack on an impulse or even buy a ticket to another part of the world on a day's notice without figuring out first how you are going to pay for an experience and if there are any hidden costs that you should be beware of.
This is Rakesh and on this new series leading up to Independence Day, we will talk about all sorts of freedom that we long for - this time the freedom, specifically the financial freedom, to embrace the wanderlust in you. This is Digging Deeper - Freedom Week edition.
In 2017, www.telegraph.co.uk published a piece citing sources about how due to poor planning, travellers in UK end up throwing away over a billion pounds on airport exchange rates and credit and debit card fees overseas.
The article said that over £1.7billion could be saved by planning ahead and anticipating currency fluctuations. Among the pitfalls, it outlined were, buying travel money at exhobitant rates at the airport when it can be ordered ahead and not having fee-free credit and debit cards.Telegraph Travel’s consumer expert Nick Trend offered his five must-dos and don’ts.
- Avoid buying currency at airports.
- Use credit cards carefully to avoid mounting interest on a balance that you won't be able to clear in one go.
- Consider a competitive, prepaid bank or currency card.
- Lean towards the local currency as this option is being offered more and more often - both at restaurants, shops and hotels, and at cash points.
- Hold on to your cash .
Spending cash we think, is an option to be taken only when every other option is unavailable.
Digital money has changed the way we carry and spend money
How many of us remember the time honoured tradition of taking along only traveler’s checks and some cash while going overseas? Before of course, online transactions, ATM withdrawals and credit cards took over and taught us the importance of learning about exchange rates and more.
The main argument for traveller's cheques, said the Telegraph article was that they could be refunded if lost or stolen, and they were safe in that they required your signature to be used and were convenient as they were accepted by thousands of hotels, shops and restaurants around the world.
They served a purpose when ATMs were scarce but as travellers began to look for instant service and access, the process of changing them at remote locations became tiresome.
Today, as we know pre-paid currency cards and debit cards serve the same purpose sans the paper and the issuance of signatures. So how can we carry money in a way that is stress free and safe?
Readiness is all, Shakespeare would say and a 2017 article in www.smartertravel.com echoed pretty much the same sentiment.
The piece talks about the importance of doing sufficient homework about currency conversion fees and figuring out what are the best options for the various expenses you will be faced with while travelling abroad.
The site recommends credit cards for large purchases such as airline tickets, hotel bills, car rentals and restaurant meals because of the convenience and also because the purchases are exchanged at the interbank exchange rate.
We quote from article, " While most credit card issuers charge currency conversion fees each time you make a purchase in a foreign currency (generally 1 percent from Visa or MasterCard plus an additional 1 – 2 percent for themselves), these fees are typically lower than those you’d pay to convert your own currency at an exchange bureau. And there are a few cards out there that do not charge any foreign transaction fees at all." Unquote. So like we said before, do your research and find out from the issuer what fees will apply to your purchases. Also simple diligence while the card is being swiped, keeping the receipts and checking your credit card statement can weed out chances of over-charging and fraud.
Yes, you may be faced with situations and locations where credit cards are not acceptable and in that case, ready cash will be needed.
Using your credit card to withdraw cash advances at ATMs, will also add to the pile of finance charges rather quickly. A second credit card can work as a safety net if the first one for some reason stops working. Find a quick and fail proof way of connecting with your card company in case during your trip, you lose your card or in the case of a theft.
The article also asks you to bear a few other caveats in mind and we quote, " Some hotels and car rental companies may put holds on your credit card for the amount of your total expected bill. This can use up your credit line before you’ve actually incurred and paid for the charges. All merchants are supposed to inform you if they do put a hold or “deposit” on your card. If they do, make sure you clarify that the hold has been removed when you’ve paid your bill in full." Unquote.
Debit and ATM Cards are obviously the best options because ATMs are ubiquitous, accessible and offer convenience without fuss and yes as the article says, they are the cheapest and most convenient way to get cash in the local currency though usually subject to currency conversion fees, foreign ATM fees or other charges from your bank and/or the local bank that maintains the ATM.
Also just in case, your ATM card isn’t valid globally, you may have to opt for a MasterCard or Visa debit card that works globally.
Some foreign currency at your disposal is a good cushion, in the early hours of travel or while in transit or as we said before, in instances where you cannot find ATMs or use cards. So plan the amount of cash you need to carry with you to account for such emergencies
The prepaid cards work best for students and young people on a budget though activation fees, charges for reloading the card, ATM charges or inactivity fees have to be factored, says www.smartertravel.com.
Companies like Western Union can step in in case you need emergency funds and someone at home can wire you the amount quickly with fees depending on variables of location and amount etc. Bank wire transfers or international postal money orders can also help though the speed of the transaction is much slower.
The more clarity the better
A 2017 piece in Financial Express offered some sage advice with an Indian perspective to first time travellers gingerly testing the foreign waters especially when the reassuring familiarity of home grown currency is not available.
At the risk of repeating ourselves, we cannot emphasise the utility and convenience of a multicurrency travel card enough:
Says the article and quotes a scource from Ezeego, "A multi-currency forex card is a smart way to carry multiple currencies. It offers travellers protection against currency fluctuations, cross currency transaction charges and minimum transaction charges on pre-paid forex card usage at ATMs overseas. Most banks also provide complimentary travel insurance on the purchase of travel cards. Travellers also have the option to lock-in the exchange rate before travel, thereby facing any future uncertainties.” Unquote.
On the subject of cash, the article pretty much repeats what we have already shared that it is essential to carry foreign currency within permissible limits while travelling to a foreign country. We quote a source in the article, “It is important to carry local currency to pay for essentials like food and drink, tips and taxis. The amount of cash one carries also depends on the destination we are travelling to. A card-to-cash ratio of 75:25 is advised.” And we know it is fairly destination dependent.
The piece also advises that it is best to carry foreign exchange based on the local currency available. And it quotes a high-level source from Cox & Kings who says, “If you are travelling to Singapore, you should carry Singapore Dollars only. Likewise, if you travel to the UK, you should carry foreign currency in Pounds. Euro is accepted in all the Euro Zone destinations. Finally, when travelling to some countries such as Vietnam, Indonesia and Sri Lanka, it is advised to carry USD and convert it into the local currency while in that country. However, when you return, please ensure that you exchange the local currency with USD at the local airport in that country as those currencies cannot be exchanged in India.” Unquote.
About pre-paid debit cards, the article informs that a guest is entitled to carry foreign exchange equivalent of USD 250,000 in a financial year. However, the RBI, it says, has stipulated that a traveller cannot avail in excess of USD 3,000 or its equivalent during a single visit in currency notes. The remaining has to be through prepaid forex cards. Therefore, it is wise to carry the remaining in pre-paid debit cards which are available on VISA platforms. The single currency and multi-currency cards are available for use when travelling to multiple countries on the same visit.
A key point to remember, says the article, while using debit and credit cards abroad is not just to factor in currency conversion fees but also to inform your bank about your trip so that large transactions do not send alarm bells ringing and compel your bank to freeze your account for security reasons.
The point is simply this. Do not put all your eggs in one basket or rely on a single mode of payment while travelling abroad. The idea is to balance your travel money portfolio and add in the mix, traveller’s cheques if you want, debit cards, charge and credit cards and some amount of cash.
Read the fine print always
An article on www.businesstoday.in also discusses multiple ways of carrying money abroad including international mobile wallets that make it easy to pay for cab rides abroad in local currency.
The article recommends once again prepaid travel cards not just because they are the most inexpensive as well as convenient way to carry money abroad but also because many banks such as Axis Bank, HDFC Bank, ICICI Bank, etc along with non-bankers like BookMyForex, UAE Exchange and Thomas Cook etc. offer these cards.
It quotes a highly placed source in UAE Exchange India, and we repeat "It's best to carry prepaid forex travel card instead of carrying high-volume currencies. It's safer, economical, user-friendly and convenient for all users.” Unquote. Some of these Prepaid Travel Cards can be loaded with multiple currencies and can serve those who frequently travel abroad or are visiting different countries in one trip.
Informs the article, the rate at which one buys forex would be marginally more than the IBR rate to manage the operating cost.
A source from BookMyForex is quoted by Business Today, ”Forex pre-card is taking the dominant position especially amongst corporate / frequent travellers who have used and found plastic currency extremely easy and full of options and functionalities." Unquote.
Some of the providers such as BookMyForex, informs the piece, also offer rate alert system to get a better rate and freeze it, and can lock in the exchange rate before the trip. This way one has full control over the rate at which the foreign currency is loaded in their forex travel cards.
Says a source in the piece and we quote, “ Customers can book through online or make request through online and block rates, collect the currency or travel card across the country from their convenient location and this card can be used for all type of foreign transactions; buying air ticket, at merchant outlets or for cash withdrawal. This card can be used till there is money available. For every cash withdrawal one will be subject to currency conversion charges, foreign ATM charges or other charges from the bank and/or the local bank that maintains the ATM.” Unquote.
Reloading this card is also easy anytime, anywhere ..over the phone or online or via Reload forms that are available .
One can also visit an agency/bank outlet with the necessary documents and the money and the prepaid card is loaded again.
An ICICI Bank source says and we quote, "These cards are generally enabled with chip and PIN features, making it more secure than other foreign currency instruments like currency notes and traveller's cheques.” Unquote.
This card can be instantly replaced in case of loss and some cards even provide added benefits of cash back option, insurance cover with air accident insurance, lost card liability etc.
Follow the rules
The Business Today piece however warns that the usage of this travel prepaid card should be in strict accordance with the regulations of the Reserve Bank of India and FEMA regulations. Amount loaded or reloaded on the card can be done as per the foreign Exchange Management Act, 1999 and prevailing RBI regulations in force at present.
The article also suggests that travellers always put cost before convenience and quotes a source at SBI Card and we repeat, "When making a purchase or a transaction in a foreign country using credit card, they will ask you if you want settlement in foreign currency or Indian, if you opt for Indian rupee, it will be converted and the exchange rate will be charged at the time of conversion, and the machine where you are converting, that acquiring bank will levy you charges which differs from bank to bank, and we the credit providers will not levy anything because we will get dues directly in Indian rupee; secondly if you opt for the foreign country currency at the time of the purchase, after 24-48 hrs the transaction will come for settlement to us, and then the exchange rate will be charged by us at the time of the settlement (by the credit card company).” Unquote.
At the time the piece was written, if one used a debit card to withdraw money abroad, around 3.5% was charged as transaction fee. The exchange rate for ATM withdrawals is generally the VISA/MasterCard wholesale exchange rate prevailing at the time of transaction and we suggest you research current rates to get a clearer picture.Travel is fatal to prejudice, bigotry, and narrow-mindedness, said Mark Twain and to make sure it is not fatal to your hard-earned money, figure out your budget, choose the best ways to spend and save your money while on the go and tick off another longed off destination from your bucket list. Happy travelling folks!