When you spend abroad, you may do a quick conversion in your head and think of the cost as manageable. The gap often comes from the forex markup your card issuer adds on top of the exchange rate.
This is the cost at which the card issuer converts Indian rupees into foreign currency. It is known as forex markup. This small fee shapes your international travel budget.
Learn all about how to better prepare your finances in this blog.
What is forex markup and how it works
Forex markup is a small percentage that your credit card issuer adds as a margin against the base exchange rate when you make a transaction in foreign currency. The margin typically ranges between 1 to 3.5% based on the type of credit card and the issuer.
Every time you swipe your forex credit card or shop internationally, the amount gets converted into INR along with this markup. It is worked into the final charge, so you may not see it separately. Some card issuers, like IDFC FIRST Bank, offer low to zero forex markup credit cards that reduce or eliminate this charge entirely.
Where does forex markup add up quickly?
Forex markup applies to almost all transactions you carry out internationally. Some of the main categories include:
- Dynamic currency conversion
When you pay in INR instead of the local currency, it may feel convenient. But you incur a poorer exchange rate due to DCC, which makes your foreign transaction costlier.
- Travel spends
All your international travel expenses, like flights, hotels, dining, and local transit, incur a small markup. As they are recurring expenses throughout your travel, they can quickly add up the forex markup.
- International shopping
Besides the essentials, you may also want to indulge in local souvenirs, clothes, and accessories. They also attract forex markup. The same goes for shopping from global websites.
- Cross-currency spending
If you have a multi-currency card and it converts funds from one currency to another, you incur a higher forex markup due to a higher conversion rate.
- Cash withdrawals
Withdrawing cash abroad is not ideal because it attracts a cash advance fee, and you also pay for the forex markup on the converted amount.
- Regular expenses
If you plan to stay longer, your regular expenses like groceries, local subscriptions, and transport add up much faster, contributing to a higher forex markup.
Smart ways to save on forex markup
Saving on forex markup does not require any drastic changes. You can make these mindful choices to gain more control:
- Always pay in local currency
When you opt to pay in a local currency, you avoid the hidden costs that come with DCC. Hence, you save on the forex margin significantly.
- Get a special travel credit card
Get a travel-focused forex credit card with zero markup, exclusive rewards on travel bookings, trip cancellation cover, complimentary lounge access, and other benefits.
- Avoid cash withdrawals
As noted, withdrawing cash using your credit card can prove expensive. So, reserve it as a last resort for unavoidable circumstances.
- Track your spending
Before you know it, the excitement of your trip can get to you and easily steer you away from the planned budget. To avoid this, track your spending through the card issuer’s app, like IDFC FIRST Bank’s tracking feature on the mobile banking app.
- Compare forex charges
Quickly check the forex markup before travelling so you can plan your non- credit card spending better. Even a 1-2% difference has a noticeable impact on your travel cost.
Final words
Forex markup may not come into your purview until you are done with your travel. But this crucial expense should form the forefront of your cost planning. Rather than budgeting for this charge, you can eliminate it entirely by choosing a zero forex credit card . It helps you spend without the worry of an added cost, and you also get exclusive travel and lifestyle benefits to enhance your overall usage experience. Many zero forex credit cards also earn reward points on major spending categories, adding value to both travel and everyday purchases.
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