Forex Card vs Credit Card: Which one is Better card for travel abroad?

This guide will help you to choose between forex card and credit card  for your overseas spending on your travel abroad.

Key Takeaways - Forex Card vs Credit card

Background

If you are planning to travel abroad, one of the most important things to consider is how to pay for your expenses in foreign currency. There are two main options that most travellers use: forex cards and credit cards. Both have their pros and cons, and choosing the best one for your needs can make a big difference in your travel budget and experience.

Forex card is a prepaid travel card that allows you to load money in one or more currencies of your choice. You can use them to pay for your purchases at merchant outlets or withdraw cash from ATMs abroad. 

Credit card is a plastic card that allows you to borrow money from your bank or card issuer and pay it back later with interest. You can use them to pay for your purchases online or offline, as well as cash withdrawl from ATMs abroad.

Both prepaid forex card and credit card have their own advantages and disadvantages when it comes to foreign travel. In this article, we will compare them on various aspects such as fees, exchange rates, convenience, rewards, and tax implications.

Fees

One of the most important factors to consider is the fees involved in using them abroad. These fees can include:

Markup fee: This is the extra charge that is added to the actual transaction value when you convert your domestic currency to another currency. It is usually expressed as a percentage of the transaction value. For example, if you buy something worth $100 with a markup fee of 3%, you will pay $103 plus GST.

Cross-currency fee: This is the extra charge that is added when you use your card in a currency that is different from the one loaded on it. It is also expressed as a percentage of the transaction value. For example, if you use a forex card loaded with US dollars in Europe, you will pay a cross-currency fee on top of the markup fee.

ATM withdrawal fee: This is the charge that is levied when you withdraw cash from an ATM using your card. It can be either a flat fee or a percentage of the amount withdrawn. For example, if you withdraw $100 with an ATM withdrawal fee of $5, you will pay $105 plus GST.

Annual or joining fee: This is the charge that is levied by the issuer for issuing or renewing your card. It can be either a one-time fee or a recurring fee. For example, if you get a credit card with an annual fee of Rs 500, you will pay Rs 500 plus GST every year.

Forex cards generally have lower or zero markup fees than credit cards, which can save you money on currency conversion. However, they may incur cross-currency fees if used outside the currency jurisdiction for which they are loaded. To avoid this, you can opt for multi-currency forex cards that allow you to load multiple currencies on one card. However, not all forex cards offer this functionality, so check with the issuer before buying one.

Credit cards usually have higher markup fees than forex cards, which can increase the cost of your foreign transactions. However, some credit cards offer zero or low markup fees as a feature, which can make them more attractive for international travel. However, these may have other conditions or limitations, such as a minimum spending requirement or a fixed deposit with the bank, so read the terms and conditions carefully before using them.

Forex cards also have lower ATM cash withdrawal fees than credit cards, which can save you money on cash withdrawals abroad. However, they may have a limit on the number or amount of withdrawals per day or month, so check with the issuer before using them.

Credit cards charge high fees and interest rates for ATM withdrawals abroad, which can make them very expensive for cash withdrawals. Moreover, the interest charges start accruing from the day of withdrawal, unlike purchases where you get a grace period to pay back.

Forex cards usually do not have any annual or joining fee, which makes them more affordable than credit cards. However, they may have a nominal one-time issuance fee, which is usually waived off by some companies. Credit cards may have annual or joining fees, which can add to the cost of using them. However, these fees may be waived off by the issuer if you spend above a certain amount in a year

Exchange Rates

Another important factor you should consider when choosing, is the exchange rate that is applied to your transactions abroad. The exchange rate is the rate at which one currency is converted to another. It can vary depending on various factors such as market conditions, demand and supply, and geopolitical events.

Forex cards have the advantage of locking in the exchange rate at the time of loading money into them. This means that you can benefit from favourable exchange rates and avoid fluctuations in the future. For example, if you load your forex card with US dollars when the exchange rate is Rs 82 per dollar, you will pay Rs 82 per dollar for all your transactions abroad, regardless of whether the rate goes up or down later.

Credit cards have dynamic exchange rates that depend on the time of transaction. This means that you are subject to the prevailing exchange rate at the time of making a purchase or withdrawing cash abroad. This can be advantageous if the exchange rate is favourable at that time, but it can also be disadvantageous if the exchange rate is unfavourable. For example, if you use your credit card to buy something worth $100 when the exchange rate is Rs 84 per dollar, you will pay Rs 8,400 plus GST for that transaction. But if the exchange rate goes down to Rs 80 per dollar later, you will lose out on Rs 200.

Convenience

Another factor to consider when choosing between these two is the convenience of using them abroad. Convenience can include aspects such as ease of getting a card, availability of customer service, security features, and hassle-free usage.

Forex cards are easy to get and do not require any credit history or income proof. You just need to be an Indian citizen of 18 years or more with a valid Aadhaar, PAN card, and passport. You can apply for forex cards online and get them delivered to your doorstep within a few days. Some companies also offer virtual forex cards that can be accessed through an app or website.

Credit cards require a credit history and income proof before issuing a card. You also need to have a good credit score and meet the eligibility criteria of the card issuer. You can apply for credit cards online or offline and get them within a few weeks. Some credit cards may require you to open a savings bank account with the bank or make a fixed deposit as collateral.

Forex cards usually have dedicated customer service teams that are available 24/7 to assist you with any queries or issues related to your card. You can also access your card details and transactions online or through an app. Some forex cards also offer features such as real-time notifications, instant reloads, and emergency cash assistance.

Credit cards also have customer service teams that are available 24/7 to help you with any queries or issues related to your card. You can also access your card details and transactions online or through an app. Some credit cards also offer features such as fraud protection, contactless payments, and global acceptance.

Forex cards are secure and protected by PINs and chip technology. They also have zero liability protection in case of loss or theft of your card. You can block your card immediately by calling the customer service number or through an app. You can also get a replacement card within a few days.

Credit cards are also secure and protected by PINs and chip technology. They also have zero liability protection in case of loss or theft of your card. You can block your card immediately by calling the customer service number or through an app. You can also get a replacement card within a few days.

Forex cards do not have any hassle of encashment after you come back. You can use your remaining balance for future trips or convert it back to Indian rupees at prevailing rates.

Credit cards offer better consumer protection than forex cards, as they come with features such as chargeback, dispute resolution, and fraud protection. If you face any issues with your transactions abroad, you can raise a dispute with your card issuer and get it resolved quickly.

Rewards

Another factor to consider when choosing is the rewards or benefits that come with them. Rewards can include aspects such as cashback, reward points, lounge access, and travel insurance.

Forex cards usually do not offer any rewards or benefits, except for some basic features such as emergency cash assistance and zero liability protection. This means that you cannot earn any cashback or reward points on your transactions abroad, nor can you get any travel insurance or lounge access.

Credit cards usually offer various rewards and benefits that can make them more attractive for international travel. These rewards can include cashback on your purchases, reward points that can be redeemed for gifts or vouchers, lounge access at airports, and travel insurance that covers you against various risks such as flight delays, lost baggage, and medical emergencies. Some credit cards also offer exclusive privileges such as concierge services, golf course access, and hotel discounts.

However, these rewards and benefits usually come at a cost. Credit cards charge higher fees and interest rates than forex cards, which can offset the value of the rewards. Moreover, some credit cards may have conditions or limitations on their rewards or benefits, such as a minimum spending requirement or a maximum cap on the rewards.

Tax Implications

From October 1, 2023, forex cards are attracting tax collected at source (TCS) at 20% if the user loads over Rs 7 lakh on the card in a financial year.

This means that if you load more than Rs 7 lakh on your forex card in a year, your card provider will collect tax at the rate of 20% on the excess amount. For example, if you load Rs 10 lakh on your forex card in a year, you will have to pay Rs 60,000 tax extra (20% of Rs 3 lakh) when compared to credit card.

There is no TCS on international credit cards. This means that you can use a credit card to spend limitlessly without paying any extra tax. However, credit cards may have other taxes or charges that are applicable to foreign transactions, such as GST.

Conclusion

Forex cards and credit cards are two of the most common ways to pay for your expenses while travelling abroad. Both have their own advantages and disadvantages when it comes to fees, exchange rates, convenience, rewards, and tax implications. The choice between these two depends on your personal needs, preferences, and spending patterns.

If you are looking for a low-cost option with fixed exchange rates and easy availability, forex cards may be a better choice for you. However, if you are looking for a high-reward option with dynamic exchange rates and exclusive privileges, credit cards may be a better choice for you.

Whatever option you choose, make sure to read the terms and conditions carefully before using it abroad. Also, inform your bank or card issuer before travelling abroad to avoid any complications later.