Forex markup on credit cards: What it means and how to avoid it

Mint

5 days ago

If you travel abroad often or shop internationally, you've likely noticed charges on your credit card statements after purchasing overseas. These extra charges are forex markup fees, and they are not errors. If you know about these charges, and how they affect your international spending, you can make better choices while abroad.
Forex markup fees, also called foreign transaction fees, are a percentage based fee charged on every purchase made in a foreign currency or through an international bank. A forex markup fee covers the costs charged by banks and card networks (Visa/Mastercard) when changing currencies from other foreign units into your home currency. Bank fee: It usually ranges from 2% to 3.5% in value of transaction.
It usually ranges from 2% to 3.5% in value of transaction. Network costs: Often built into the exchange rate, but Visa and Mastercard typically add a 1% conversion fee.
Often built into the exchange rate, but Visa and Mastercard typically add a 1% conversion fee. GST: 18% goods and services tax on all fees.
From time to time, Dynamic Currency Conversion (or DCC) might offer you the choice to pay in your resident home currency. This option seems convenient when converting to your local currency at the terminal point of sale however, in general: There is typically a DCC markup of 1-3 percent on top of the bank/network fees.
DCC is always more expensive because the issuer banks typically have a favourable exchange rate.
Tip: In order to avoid avoidable markup, always decline DCC and pay in local currency.
This surcharge will quietly inflate your bill. Your total could increase (even by a little) if you choose a local currency option, even if offered by the merchant. It is up to you as the cardholder to make an effort to check the statement, and assess all the costs.
Credit cards Joining fees Federal Bank Scapia Credit Card ₹ 0 Ixigo AU Credit Card ₹ 0 RBL Bank World Safari Credit Card ₹ 3000 IDFC FIRST Mayura Credit Card ₹ 5999 Axis Bank Burgundy Private Credit Card ₹ 50000 AU Zenith+ Credit Card ₹ 4999 YES Bank Marquee Credit Card ₹ 9999
(Source: PaisaBazaar)
(Note: Please visit the bank's official website to learn more about the fees & charges of the credit card of your choice) Choose cards with zero forex: Certain premium programs offer 0% forex markup on flat fees saving you as much as 3.5% on each purchase. Avoid DCC opportunities: Allow your own supplier to take care of the conversion and do your payment in the local currency. Check any fees that may apply: Check the fees on your bill against the credit card's terms. Look at the prepaid forex cards for cash: While there may be fees for ATM withdrawals, they also "lock" currency rates.
Although there is a markup applied, credit cards are still handy when: Emergencies: They are convenient and do not require cash.
They are convenient and do not require cash. Online reservations: There are certain websites that will only accept credit cards; not forex debit/ prepaid cards.
There are certain websites that will only accept credit cards; not forex debit/ prepaid cards. Rewards & perks: Leverage additional benefits such as rewards points redemption, travel insurance, lounge access.
In conclusion, although forex markup costs seem negligible per transaction, they do add up quickly, especially when traveling or shopping online where USD subscriptions are available. You can also select a minimal markup card, decline DCC, and use prepaid FX cards when necessary if you know your total costs.
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