Home >Money >Personal Finance >Benefits of travel credit cards come at a cost

It is holiday season and you could be doing all it takes to ensure that your trip is comfortable yet cost-efficient. From booking affordable stays like an Airbnb to using your airline reward points, there’s a lot you can do to ensure you don’t exceed your travel budget. If you are a frequent traveller, a travel credit card can also help you save up, but watch out for the costs and other caveats.

Travel credit cards essentially help you earn rewards you can use to make your travel relatively affordable. Some prepaid travel cards also store money in foreign currency.

According to a report, Moneymood 2019 – How India Will Bank This Year, by Bankbazaar, there was a 59% surge in the number of people applying for travel credit cards from metro cities and an increase of 309% from non-metros in 2018. While more and more people are opting for such cards, it’s important to understand the cost they come at and their benefits.

The cost

The rate of interest charged by travel cards is as high as that charged by credit cards. It’s usually in the range of 36-45% and unless you opt for a no-frills card, you would also have to pay a joining fee with an additional annual fee. “This is usually a sizeable amount in case of co-branded or specialized cards. So, make sure that the cost of the card is recovered before you opt for it," said Navin Chandani, chief business development officer, BankBazaar, an online financial services market place.

Some companies waive off annual fees if you spend above the threshold which varies from card to card. “Most reward cards come with a sizeable annual fee. You have to earn more in rewards than you pay for the privilege of having the card. If you spend enough, the rewards you earn often make the annual fees well worthwhile, not otherwise," said Chandani.

Also, note that every time you use your travel credit card abroad, you will be required to pay a network fees in the range of 1-2% of the total transaction amount to the bank for facilitating each foreign transaction. In addition, lenders also charge a foreign transaction fee. This can range from 1.5 -3.5% of the total transaction. And then there is a foreign currency mark-up fee which you pay for making the transaction in a foreign currency. While this may not seem like a lot for smaller transactions, it could run into thousands of rupees for bigger ones.

It is always advisable to keep a tab on your foreign transaction fee and cash withdrawal charges when you use your card abroad.

The benefits

Travel credit cards essentially benefit people who travel frequently. People usually associate such cards with air miles and, hence, cheaper air fares, but there’s a lot more to them, including special discounts on select websites, airport lounge access, auto upgrades on flight tickets and excess baggage allowance. Special offers and discounts at partner hotels and restaurants is yet another benefit that comes with using travel credit cards.

Rewards and benefits mostly depend on the kind of card you purchase but most travel credit card issuers collaborate with an airline company or a travel portal. For example, the Air India SBI Platinum card gives 15 reward points for every 100 spent on Air India tickets, eight free airport lounge visits every year and insurance up to 1 lakh on losing your card. Also, on renewing the card you get an additional 2,000 reward points.

The SBI Platinum card is one of the basic travel credit cards available in the market and is predominantly focused on making your flights reasonable.

Some of the premium cards include benefits such as concierge service for pre-trip assistance, base fare waiver on flight bookings, offers on hotel reservation and flight bookings, access to golf lessons at select gold clubs, baggage insurance, entertainment bookings and so on. “A regular credit card usually has a high foreign currency transaction fee, when compared to a travel credit card," said Vinay Bagri, co-founder and chief executive officer, NiYO, a digital banking solutions company. “Travel cards also have spending limits that can be configured, and hence, overspending does not really happen, while in case of credit cards, there is availability of more funds."

Should you get one?

Which travel credit card you must pick and whether you need to get one depends on how frequently you travel and your loyalty towards certain brands, for example a particular airline.

“Travel cards are ideal for those who tend to travel a lot. These are not no-frills cards, and have a sizeable joining fee and annual fees. They offer several benefits and rewards, but they come at a price. If you do not travel frequently, you would not be able to make optimum use of these rewards and benefits," said Chandani.

Before opting for such a card, evaluate the spending that you’ll be required to do to get those extra offers and discounts. Don’t get tempted if the card requires you to spend more than what you can comfortably pay back. “If you are an infrequent traveller, you may want to look at other cards that may offer you benefits that suit your requirements but also provide a little extra while you travel," added Chandani.

“The risks (of using a travel card) are of losing the card or finding that the same isn’t working because of overuse or damage or, worse, realising that the particular brand does not work in the country you are travelling to," said Lovaii Navlakhi, managing director and chief executive officer, International Money Matters Pvt. Ltd, a financial planning firm.

If you are a frequent traveller, opt for a card that has minimal transaction fee. Certain travel cards also come with no foreign transaction fees. Do your research and pick a card that rewards you well for foreign transaction so that the fees get compensated for while redeeming the rewards.

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