How low forex mark-up on credit cards can help you save big while travelling abroad

If you are planning to go abroad and rely on a credit card for your day-to-day expenses, be mindful of the fact that each credit card levies a small fee for the transactions incurred in a foreign currency. This fee is also referred to as a foreign exchange conversion fee.

This is a fee charged by a bank for converting one currency into another. The fee could range between 1% and 4% on each transaction.

Typically, your total expenses could be exorbitant when you travel overseas. For instance, when your total spend via credit card is ₹10 lakh, then 5% of this sum is ₹50,000.

Now imagine your forex conversion fee falls to 2.5%. All of a sudden, your expenditure in the form of a forex conversion fee falls to ₹25,000. So the amount of the forex conversion fee makes a big difference.

What is the forex conversion fee?

It is a fee charged for exchanging one currency for another. This is also known as a foreign transaction fee. For instance, ICICI Bank's credit card charges a 3.5 per cent markup fee + GST.

Do all banks charge the same conversion fee?

No, different banks and credit card companies have different rules pertaining to foreign exchange conversion. This could be anywhere between 0% and 5% per transaction.

Can there be no conversion fee at all?

There could be a one-off credit card that does not charge any foreign exchange conversion fee. For instance, RBL Bank has a zero conversion fee on the World Safari Credit Card.

Note: The above example is provided for illustrative purposes only and is subject to change in accordance with the bank's policies. Please contact the bank's official website for the most up-to-date details.

What difference would the zero conversion fee make?

Credit cards which do not charge any conversion fee can help you save a considerable amount of money. As mentioned above, a total transaction of ₹10 lakhs can lead to the levy of ₹40,000 to 50,000, depending on the foreign conversion fee.

When the card does not charge anything in the form of this fee, you stand to save this money.

Which are the prominent credit cards, and what is their conversion fee?

These are some of the prominent credit cards that charge a foreign exchange conversion fee.

• HDFC Bank Regalia ForexPlus Credit Card charges 0.18% of the gross value or ₹45, whichever is higher, for currency up to ₹1 lakh.
• Axis Bank Magnus Credit Card levies 2% fee.
• HSBC Visa Platinum Credit Card levies a 3.5% conversion fee.
• ICICI Bank Credit Cards, as highlighted above, charge a 3.5% conversion fee + GST.

Note: The charges discussed above are illustrative in nature as they vary from one credit card to another. For complete details, please visit the official website of the credit card issuing institution.

Now, these charges make it essential for credit card holders to clearly understand that these tools are credit instruments. To use them properly, there are several well-known rules, such as the 2/3/4 rule, the 50/30/20 rule.

When a credit card user uses these rules, it makes the entire experience of holding these credit instruments pleasant and feasible. Let us, for instance, discuss the 2/3/4 rule of credit cards.

What is the 2/3/4 rule for credit cards?

The 2/3/4 rule for credit cards limits new card approvals to protect the credit integrity and credit score of an individual. It says a maximum of 2 cards should be applied for in 30 days, 3 cards in 12 months, and 4 cards in 24 months. This helps manage credit responsibly.

By following this simple rule, a credit card holder can ensure that their overall debt remains low. Having multiple credit cards definitely has its benefits, but still, keeping a tab on the number of credit applications one sends within a short span of time must be kept in check, as it reflects a credit-hungry attitude.

In conclusion, before choosing a particular credit card, it is essential to understand the associated complications and risks of holding credit cards. As these risks can become very difficult to deal with later on. Credit cards come with risks, such as high interest rates on unpaid balances, late payment fees, overspending, and legal action in case of default. One should consult a certified financial advisor before going ahead with any credit card application.

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Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards, and credit scores. Mint does not promote or encourage taking credit, as it comes with risks such as high interest rates and hidden charges. We advise investors to discuss with certified experts before taking any credit.