Executive Summary : Planning and managing international holidays is not easy. Apart from deciding on the budget and the itinerary, it becomes very critical to plan on the right mode of carrying money. Further, there should be continuous access to funds during the period of stay as well. However, in majority of cases, this aspect is not given much thought and it is usually a decision taken at the last minute. This results in unwise modes of carrying money and spending while on international holidays. So what are the different modes of carrying money abroad?
The most popular modes of carrying money abroad are in the form of cash, travellers cheques and cards - could be credit cards, debit cards or other prepaid cards. Carrying cash used to be the preferred mode till about a decade back. However, today, India’s central bank RBI has imposed regulations on how much one can carry abroad in different currencies. Further, it is not very safe to carry too much hard currency abroad. Not only is it more likely to lose the cash, it also becomes uncomfortable to carry it around. Another option of carrying money abroad is by means of traveller’s cheques. These are typically cheques issued for fixed amounts by banks or select travel agencies, which can be used to make payments abroad. It is easier and safer to carry traveller’s cheques compared to cash, as it can be replaced if it is lost or stolen. However, over the past few years the popularity and use of traveller’s cheques have reduced primarily due to other alternatives such as credit cards, debit cards and widespread presence of ATMs. So how do credit cards compare with options like cash and traveller’s cheques?
Benefits and Drawbacks of Credit Cards:
A credit card is plastic money and therefore carries benefits of ease of use, safety and widespread acceptability. First, unlike cash, it is convenient to carry a credit card while on a holiday. One need not visit a bank or foreign exchange agency to purchase traveller’s cheque or convert currency. Even after the trip is completed, there is no hassle of being left with foreign currency or unused traveller’s cheques. It is also a safer way of keeping oneself funded. Even if a credit card is misplaced or stolen in a foreign country, it is possible to block the card immediately and safeguard oneself against unauthorised use. Credit cards have become extremely popular over the past decade. Banks also issue specific credit cards for travel purposes, with additional benefits. The popularity of credit cards has increased acceptability, especially in tourist destinations.
However, the catch in using credit cards abroad is the fee involved. Use of credit cards in an international location usually involves payment of exchange fee, which is almost 3% - 3.5% of the transaction value plus service tax. If one uses credit cards to purchase high value items, this can work out to be quite a substantial amount. This fee is usually applicable even on debit cards. Further, if the credit card is used to withdraw funds from ATMs abroad, a withdrawal fee is applied in addition to the exchange fee. Another drawback of using credit cards is that if the card is lost or stolen abroad, one will get the replaced card only on arriving back to the home country. This means alternative funding options will need to be worked out for the remaining period of the trip.
If one is planning an international holiday, it is important to check with the bank if the credit card he/she has can be used abroad. If not, the user should explicitly request the issuer to authorise this use. This is because, RBI has mandated credit card and debit card issuers to disallow international transactions by default, unless specifically requested by the user. Even otherwise, it is always better to inform the bank so that the card is not blocked on the back of suspicion. Further, one must ensure that the card is a chip based card. It is useful to estimate beforehand the planned expenses on the credit card and to calculate the extra amount to be paid as transaction fees. Remember to enquire with the bank all the fees and charges that will be levied on using the card in another country.
Should credit cards be used on international holidays?
Keeping in mind the relative advantages and drawbacks of each payment mode, it is always recommended to carry different options of payment while travelling abroad. This becomes especially relevant when one is travelling for durations longer than one week.
For smaller expenses or for petty expenses, it may be useful to carry cash in the local currency. Cash is also necessary when travelling to remote locations where there is no accessibility to a bank or money exchanger. Do not keep all the cash in one place. Instead of converting all the currency to the local currency, it may be useful to carry a combination of a popular currency such as US dollar and the local money. Some banks issue international credit cards which have a nominal or low currency conversion fee. This can work out to be cheaper than normal credit cards. Prepaid travel cards are another option. Prepaid cards are prefilled with money and do not work on credit. Once the card balance is exhausted, it can be reloaded at any time by the user or anyone who is authorised by him. Many banks allow remote reloading of the prepaid card as well. Although these cards also charge currency conversion fee, it may be at a preferential rate or absent if one spends in the same currency of the card. However, these cards come at a cost, similar to normal credit cards. Carrying an amount in the form of traveller’s cheques also can be useful. These can be used for big ticket items, which can avoid the payment of fees applicable on credit cards.
Therefore, rather than solely relying on credit cards for international holidays, a combination of different payment options for different expenses can work well in terms of safety, cost and convenience.