How prepaid forex cards differ from debit or credit cards

While travelling abroad, one can either use foreign currency notes or make direct payment in foreign currencies using international debit cards, credit cards, or forex cards. But, according to experts, forex cards are comparatively more efficient among all the available options, as these are tailor-made for financing international expenses.

Take a closer look at how forex cards differ from debit or credit cards. Firstly, you can use all types of cards for payment to a merchant or ATM withdrawal overseas. You can also use your INR credit or debit cards issued from an existing bank account to withdraw money anywhere in the world. These cards are generally linked to your savings account with a credit limit. However, credit and debit cards are very expensive when it comes to withdrawing foreign currency from ATMs abroad. You have to pay interest charges, the foreign currency transaction fee, and the withdrawal fee (also known as the cash advance fee). Sudarshan Motwani, founder and CEO, BookMyForex, said, “INR cards (debit/credit) are like carrying Indian Rupee instead of foreign currencies where you would not be in control over rates at the time of spending overseas/ATM withdrawals. Some banks may charge 2% to 5% over the interbank rates (IBR), and some fintechs may offer zero mark up over Visa/ MasterCard rates. Still, there will be some premium loaded on Visa/ MasterCard rates, which is over and above IBR (usually within 1% over IBR).”

Forex cards, however, are prepaid instruments designated in specific foreign currency to carry a specific amount. The cards are pre-loaded with currency and are not linked to any particular bank account.

To be more precise, when you swipe your cards, specific exchange rates apply to debit/credit or forex cards. INR credit and debit cards are local currency instruments. INR conversion to a foreign currency happens at the time of POS/ATM transaction at that day’s rates, plus a premium is also applied that is unknown to the customer. On the other hand, forex cards carry a specific amount of currency that is already converted at specific conversion rates. This way, when a forex card gets pre-loaded with the destination’s currency, the exchange rates are locked-in, and you get protected from currency rate fluctuations. Hence, you pay lesser charges while transacting through forex cards than either debit or credit cards.

Sachin Vasudeva, associate director and head of credit cards, Paisabazaar.com, said, “Since forex cards come up with multiple currency denominations, they do not involve cross-currency markup charges, as long as the card is used within the same currency jurisdiction.”

“Cross-currency markup charges, in case of debit cards and credit cards, can range anywhere between 1.5% and 3.5% or even higher in some cases,” he added.