Conversion cost, service tax, transaction fee...credit cards have a long list of charges. A couple of strategies to reduce these.
When a holiday in Singapore was extended, Anjana Bhatt thought nothing of paying for the additional expenses through her credit card. Back home, she realised her mistake. Her bill, a whopping Rs 1.5 lakh, seemed too high. “I just bought a few small things. I don’t know how I ran up such a big amount,” says an exasperated Bhatt.
A little research revealed that each time she swiped her card, there was a currency conversion or a mark-up fee of 2-3.5 per cent.
Typically denoted as ‘currency conversion mark up fee’ in your credit card bill, this raised costs substantially. And then, there was a service tax of 10.3 per cent on the fee.
Say you spend Rs 1 lakh. The conversion fee would be Rs 2,000-3,500. In addition, the service tax would be Rs 206-360. The total expense — Rs 102,206-103,860.
Withdrawal of cash through the credit card is a strict no-no as this will double the damage. For one, there will be an interest rate of three per cent. In addition, there will be a conversion cost of 2-3.5 per cent, along with the service tax. And then, there will be a flat fee of Rs 300. On the whole, you end up paying seven-eight per cent on the withdrawal.
Use of credit card is necessary at times as the Reserve Bank of India has stipulated that only $3,000 (around Rs 1.3 lakh) can be carried in cash. Subrat Pani, head, cards, Kotak Mahindra Bank, makes a case for using credit cards on foreign trips saying, “Conversion at airports comes at a higher cost, 3-10 per cent. Therefore, it makes sense to use credit cards.”
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While there is little escape from these charges, we give a couple of ways to reduce costs:
Forex cards
The other cost-free option, besides cash, is a prepaid forex card. You can load the card for a maximum of $10,000 for luxury trips and $25,000 for business trips. The cost of loading: Rs 100-300. This is in addition to the $3,000 cash that you can carry. The rate of conversion is 1.5 per cent. A few big players offering this card include Axis Bank, Citibank and ICICI.
“The best feature is that it is available in nine currencies. It saves cross-currency charges”, says Sameer Nemavarkar, senior vice-president (retail banking) and head, forex and remittances, Axis Bank.
The problem arises if you are unable to spend the entire amount. If you come back and convert, there is an additional 1.5 per cent charge. The overall cost may be the same as in case of a credit card. For a frequent traveller, though, it may make sense to keep the forex card for the next trip.
Shopping at select shops
Some outlets follow the dynamic currency conversion method. This allows you the choice of paying in Indian rupees for products originally priced in dollars. Since the payment is in rupees, there is no conversion charge.
Adjustments against bill
A roundabout way of saving money is by earning reward points on transactions abroad. A few companies allot higher reward points on foreign transactions for both debit and credit cards.
Some companies allow you to adjust your reward points against your bill payments or the annual fees. But this is limited to a few premium cards only. For instance, Citibank customers having a Cashback Card can avail of this facility.
Loan against your card
If you want to spread the repayment, you can opt for the loan-against-card option. But even under this, the maximum loan one can get is 50 per cent of the credit limit. You could pay the amount in instalments in 12, 24, 36 or 48 months. Interest rates charged are 1.25 per cent (12months), 1.10 per cent (24 months), and 0.99 per cent (for 36 and 48 months).