Planning an international trip might be challenging. Flights and hotels already cost a lot, and managing expenses during the trip can make it even more difficult to stay within your budget. While you can save on your travel bookings through credit cards, figuring out how to save on money spent abroad might be confusing.
With credit cards and forex cards being the two most popular options, which one should you choose? Should you carry a forex card or rely on your credit card? Here is a detailed comparison of forex cards vs credit cards to help you choose the right pick for your overseas spends.
What is a Forex Card?
Forex cards, also known as prepaid travel cards, have become a convenient way to spend abroad. With forex cards, you can load currency before your trip and then use it for your international spends. One thing that makes forex cards stand out is that you can load multiple currencies on a single forex card and easily manage your expenses while travelling from one country to another. Also, the exchange rate is fixed at the time of loading on forex cards, which saves you from the fluctuating exchange rate.
Unlike credit cards, forex cards allow you to withdraw cash from the preloaded funds from an ATM, usually at a nominal fee. However, do keep a note that you can load the foreign currency only up to a certain limit on your forex card as per the RBI guidelines.
Credit Card Vs. Forex Card: Key Differences Explained
While both forex and credit cards allow you to make foreign currency transactions, they both come with their own terms and conditions. Given below are some of the key differences between credit cards and forex cards:
Forex Markup Fee
Credit cards charge a forex markup fee ranging from 0% to 3.5% (as per the card variant) for foreign currency transactions. Whereas forex cards allow you to load the currency and spend it without any forex markup fee, which reduces the overall cost. For example, on spending Rs. 1 Lakh in foreign currency, you have to pay a forex markup fee of up to Rs. 3,500 (3.5%), but with forex cards, you can save on your international spends as you don’t have to pay any additional charges. However, select travel or premium credit cards also come with zero or low forex markup fee along with other travel benefits.
Rewards & Benefits
While forex cards are primarily designed for foreign currency transactions, you can also save on your international spends with credit cards. Usually, premium credit cards charge a low or zero forex markup fee while offering multiple travel benefits, like rewards or cashback, complimentary lounge visits, free hotel memberships, and more. Besides this, select travel credit cards like Federal Scapia also charge a zero forex markup fee along with accelerated rewards on your travel spends, allowing you to save on both travel and international spends. Therefore, choosing a credit card over a forex card is more beneficial if you want to maximize overall savings, as forex cards are designed solely for loading and spending foreign currency and do not offer any additional benefits.
ATM Cash Withdrawal
Unlike credit cards, forex cards allow you to withdraw cash from ATMs at a nominal charge. Credit cards, on the other hand, charge a high interest rate on cash withdrawals, and you don’t get an interest-free period on such transactions. The interest is charged from the very first day of withdrawal, which can lead you into a debt trap. Hence, choosing forex cards might be a better option for cash withdrawals. However, do keep a note that forex cards also charge a nominal fee for cash withdrawals.
High Interest Rate
Credit cards allow you to borrow funds up to an assigned limit and repay them later through monthly bills. However, in case of any late or default payments, credit cards attract high interest charges along with a late payment fee. Also, in case you do not repay the entire bill, the interest will be charged on the outstanding amount and on new transactions from the date of purchase. Therefore, using a forex card for international transaction would be a smarter choice if you cannot afford to pay your credit card bill in full.
Exchange Rate
With credit cards, when you spend internationally, usually your transaction is usually converted as per the current exchange rate, and a forex markup fee is also levied. However, in the case of forex cards, the currency exchange rate is locked at the time of loading, which protects you from the fluctuating exchange rates and enhances your savings.
Credit Card Vs. Forex Card: A Quick Comparison
| Particular | Credit Card | Forex Card |
| Ease of Use | Make transactions as per the credit limit, and currency conversion is done at the time of transaction | Preloaded with foreign currency, no currency conversion needed at the time of transaction |
| Convenience | Easy to use for online & offline spends, but cash withdrawals attract high interest charges from the first day | Easy to use for online transactions as well as for ATM withdrawals at a nominal fee |
| Fees | A forex markup fee of up to 3.5% is levied, as per the card variant | No foreign currency transaction fee is charged |
| Exchange Rate | The exchange rate is applied at the time of transaction | The exchange rate is locked at the time of loading |
| Flexibility | Cardholders can make transactions in any currency | Cardholders can hold multiple currencies in a single forex card |
| Interest Charges | In case of default or late payments, high interest charges are levied | No interest charges are levied |
| Travel Benefits | Comes with multiple travel benefits, such as rewards/ cashback, lounge access, free hotel memberships, etc. | No additional travel benefits are offered |
Which is better for international travel?
The choice between a forex card and a credit card depends on your preferences and requirements. If you are a frequent traveller who want to save only on international spends, choosing a forex card would be a reasonable option.
However, if you are looking for a card to save on your overall travel spends, choosing a credit card would be a smarter choice. You can save on your international spends with low or zero forex markup fee while availing multiple travel benefits, including, accelerated rewards/cashback, redemption of accumulated rewards against travel expenses, complimentary lounge access, free hotel memberships & stays and more.
Overall, credit cards turn out to be a better choice for international travel if you want to maximize your savings across multiple travel spends. However, if you only want to save on international spends, you can opt for a forex card.
Choose a Forex Card if:
- You want to lock in exchange rates in advance
- You prefer to stick to a pre-set travel budget
- You want to avoid high foreign transaction fees
Choose a Credit Card if:
- You want to save significantly on overall travel spends
- You prefer earning rewards/ cashback along with other travel benefits
- You are confident about repaying your dues on time to avoid high interest rate
