Do Prepaid Forex Cards Make Your Holiday More Expensive?

Prepaid Forex Card
Prepaid Forex Card

My answer to the above question would be a “Yes” but then prepaid Forex cards do happen to exist in our world and that can only be so if there are people who find these cards useful. Before I get to talking about what makes prepaid Forex cards a little too expensive, let us first see the  benefits of prepaid Forex cards. The primary feature and selling point of prepaid Forex cards is that these cards are safe and secure. The safety is due to the four digit PIN that is supposed to be known only to the customer and the security is that in case the customer loses the card, they can contact their bank to block the card and prevent its misuse. On the convenience front, a Forex card can be used at all Visa/MasterCard merchant outlets and Visa/MasterCard ATMs across the world. Some other benefits of Forex cards that are advertised by banks are: built-in travel insurance cover, online usage and tracking, etc. Your bank may have compiled a list of 10 other benefits of their Forex card product but trust me, much of that would be irrelevant.

Problems with Prepaid Forex Cards

Before going to the costs associated with prepaid Forex cards, you need to consider another issue. Suppose you are going on a holiday to Thailand, you will need Thai Baht. But will you find a Forex card denominated in Thai Baht, I don’t think so. The ten most common currencies in which Forex cards are issued are: Australian Dollar, Canadian Dollar, Dirham, Euro, Japanese Yen, Singapore Dollar, Pound Sterling, Swiss Franc, Swedish Crona, and USD. When you withdraw THB from an ATM in Thailand using your USD denominated Forex card, you incur cross currency charges in addition to all the other charges that you pay on your Forex card.

How much a Prepaid Forex Card costs you?

Here is the list of charges on the USD denominated Forex card product of a leading bank in India:

1. Card Issuance Fee: INR 125 (2 USD)

2. Reload Fee: INR 75 (1.25 USD)

3. ATM Cash Withdrawal: 2 USD

(ATMs of foreign banks restrict the amount of cash that can be withdrawn in a single transaction, hence you need to do many transactions and pay 2 USD fee for every transaction. Your own bank will also put transaction-wise, day-wise limits on cash withdrawals/merchant transactions abroad)

4. Balance Enquiry: 0.50 USD

5. Charge Slip Retrieval: 3 USD

6. Forex conversion Fee: Mentioned but not specified

7. Cross Currency Charge: 3% markup when you use the card in a currency other than the card currency

8. GST at the rate of 18% is applicable on all the above charges

Hidden Charges

There are some charges / costs associated with your prepaid Forex card that your bank will not tell you about:

Currency conversion

Banks really suck your blood when it comes to selling you a foreign currency. The retail Forex conversion rate offered by a bank is usually 3 to 4% higher than the inter-bank rate. To know the inter-bank rate for USD against INR, go to Google and type ‘usd inr rate’ in lower case without quotes. For Thai baht, type ‘thb inr rate’ and so on. That is what the foreign currency cost your bank and they will sell it to you at a 3-4% profit. That means, when you load a foreign currency onto your Forex card, you not only pay the reload fee, you also pay a 3-4% conversion charge. Also, when you go to a bank to sell your spare foreign currency, they will buy it from you at a 3 to 4% discount on the inter-bank rate and also charge you a currency surrender fee.

Watch The Rate

It is very important to watch the exchange rate at which you are loading a foreign currency onto your Forex card because your bank may not declare some charges to you upfront but charge you instead through a very bad exchange rate. Similarly, when you sell your left-over Forex balance back to your bank, the buy-back rate may be extremely low as compared to the inter-bank rate.

Cross currency charge of the foreign merchant’s bank / ATM provider

The foreign merchant’s bank or the bank whose ATM you use is also going to levy a charge on selling you their currency, may be any percentage because a bank never sells a currency without making a profit. Your own bank will add their currency markup of 3% over the already inflated rate charged by the foreign bank.

You are keeping an interest-free deposit with your bank

When you load your Forex card with a foreign currency, basically you are keeping an interest-free deposit with your bank because there will be a gap of several days before you will start withdrawing/using your Forex balance. Your bank knows this and instead of giving you some benefit for your deposit, will rather charge you for it. On the other hand, by using your ATM/Debit card, you earn interest on your deposit account right upto the moment when you use the card.

Know The Gimmicks

Sometimes there are so called ‘special offers’ on Forex cards that promise free ATM withdrawals abroad. I have verified the details of some of these offers and was told that the offer was limited to USD denominated Forex cards and that too on the first three withdrawals made within the offer period on a newly issued Forex card. A USD denominated card is good for travelling to a country where you can directly withdraw USD from an ATM, and there are not many countries like that.

When to take a Prepaid Forex Card

Some situations when a Forex card will make sense is when you do not wish to carry cash, your home currency is likely to depreciate against foreign currencies in the near future and you need to lock in the price of the foreign currency for your holiday expenses.

One Exception – Forex Card from IndusInd Bank

Once due to the compulsion of not being able to withdraw cash from my account, I had to experiment with a prepaid Forex card. After a careful study, I decided on IndusInd Bank. They offered sale of Forex at inter-bank rate without any mark-up. It was true because I loaded Forex on this card several times and paid exactly the inter-bank rate. In addition, two Forex withdrawals via ATM in foreign countries were offered free every month. I loaded USD and was able to withdraw USD in Cambodia twice in a month without any charge. Similarly, I loaded SGD at inter-bank rate and withdrew from ATMs in Singapore without any charge. In effect, I was able to buy and withdraw USD and SGD at exactly the inter-bank rates. Nothing extra. Currency loading charge / card issuing fee were waived by IndusInd Bank as part of some special offer. So, if you must use a Forex card, do look at IndusInd Bank. Only two negatives in this deal are that IndusInd Bank only offers a limited number of currencies on its multi-currency card and the card is not personalized.

Options other than Forex Cards

The primary competitor of Forex cards is not travellers’ cheques (TCs) because TCs are not accepted everywhere and are not easy to encash. That leaves us with only one option other than hard cash, and that is an ATM/Debit card.

International ATM/Debit Card

It may surprise you but the only real difference between your international ATM/Debit card and a Forex card is the Forex rate fluctuation. When you buy a Forex card and load with with a foreign currency, your cost of foreign currency gets determined. Now you own a certain number of units of that foreign currency and any future change in the price of that currency is not going to impact you as long as you can contain your spending within your Forex card balance. On the other hand, the cost of a foreign currency upon a cash withdrawal or a spend at a merchant establishment with your international ATM/Debit card will be different with each transaction. You will be charged as per the prevailing rate at the time of the transaction.

Here I would like to mention that one large bank in India is trying to mislead their customers by saying that cross currency charges are applicable to ATM/Debit cards but not on their Forex card. It is a blatant lie, and that bank knows this. Cross currency charges always apply whether you use a Forex card or ATM card. See, when you buy a Forex card in USD and use it for spending or withdrawing THB, you pay cross currency conversion charges and other markup. In this process, when you first loaded USD to your Forex card, you actually bought USD by paying with your home currency and paid conversion charges and fees. Again when you used that Forex card to pay in THB, you converted USD to THB and again paid conversion fees and charges. This is nothing but cross currency conversion. In comparison if you never buy a Forex card, keep your money in your bank account, and use your ATM/Debt card in Thailand at an ATM or at a merchant outlet, you are actually buying THB and will pay for the same with you home currency that will be directly debited to your bank account. But the Thai bank involved in this will take USD from your bank for the transaction (THB-USD conversion), and your bank will pay those USD to the Thai bank by taking INR from your account (INR-USD conversion). Effectively, you cannot escape cross currency charges regardless of whether you use your ATM card or your Forex card. Do not get misled by your bank on this.

Why not use your ATM/Debit Card instead?

After all, your ATM/Debit card can also be used at all Visa/MasterCard ATMs and merchants, is also secured by a PIN, and can also be blocked by your bank when lost / stolen. That means, if you are not too much worried by possible Forex rate fluctuations, an international ATM/Debit card is as good as a prepaid Forex card. You also save on the Forex card issuance fee and Forex loading fee.

Multi Currency Forex Cards

The multi-currency Forex cards on offer by some Indian banks take care of cross-currency charges to some extent. Suppose one is visiting two different countries in a single trip, say Thailand and Cambodia, it is possible to load two currencies, USD for Cambodia and THB for Thailand on to a single multi-currency Forex card. The reload fees, Forex surrender fees, sale and re-purchase at retail rates with hefty profit margins for the bank, and surrender fees, etc. still continue to be issues even with multi-currency Forex cards.