Planning holiday? Foreign transaction fee can burn big hole in your pocket

Carrying cash or having a good travel credit card with rewards can help reduce costs

Planning to use your credit card while on a foreign vacation this holiday season? There’s a fee hidden in the fine print of terms and conditions. And we are not talking about the foreign currency conversion fee — the fee charged to convert your foreign currency purchases into rupees. This is called the Foreign Transaction Fee (FTF), which can dig a big hole in your pocket if you aren’t careful. 

Navin Chandani, chief business development officer, BankBazaar, says: “The FTF is a fee you pay the credit card issuer every time you use the credit card abroad. It usually ranges between 1.5 per cent and 3.5 per cent of the amount of transaction. This is charged irrespective of the currency and transaction amount, and applies to all types of transactions including cash transactions.” This means if you used your credit card for all your shopping and the bill goes up to Rs 100,000, you might end up paying Rs 3,500 as FTF. 

Even the debit card is not a great option. Says Sahil Arora, vice-president and head of payment products, Paisabazaar.com: “Foreign transaction fees of up to 3.5 per cent are charged on debit cards as well, except by few lenders who do not charge a mark-up fee on foreign transactions done through specific debit cards. For instance, IndusInd Bank’s World Exclusive Debit Card and Signature Exclusive Debit Card (only for exclusive customers) do not involve any foreign currency charges.”

FTF can apply in India also: Even if you are using your debit and credit cards in India, you may have to pay a fee every time a transaction is made in a foreign currency. Rajanish Prabhu, group president and business head, credit cards, YES Bank, says: “A foreign currency markup fee will be levied every time a transaction is made in a foreign currency including on a foreign website (a website using a currency other than the card-issuing bank’s local currency).”

Anil Ramachandran, executive vice-president and head, marketing and retail unsecured assets, IndusInd Bank, says: “The term FTF mentioned is a markup on the interbank currency conversion rates prevalent on the day of the transaction. This is a standard charge levied across the market. This fee is calculated on the Indian rupee equivalent of the transaction made in a foreign currency. The markup rates, that is, the fee, is applicable on both credit and debit cards.”

What’s the way out? There are a few ways to avoid FTF. First is to get a credit card that charges a low transaction fee. The other options include going for a bank account that doesn't charge an FTF. Then, you could exchange currency before travelling. Samant Sikka, founder, Sqrrl, an intuitive DIY digital platform for investments, explains: “You can perhaps buy currency in advance. And, keep credit card expenses only for an emergency on a foreign trip. If you plan properly, make a daily spending budget in advance, you can buy the currency from here and take it. Another thing to do is to do goal-based savings for a couple of vacations every year.” 

Also, avoid using foreign ATM to avoid FTF. Adds Arora: “When you withdraw cash internationally through your credit card, cash advance fees of up to 3 per cent of the transaction value are levied, along with the applicable markup charges and finance charges at the prevailing rate.”  But if you can choose the right travel credit card, you will end up getting more value as rewards and benefits, and even with the FTF on the card, you might end up getting a good deal.