Understanding Foreign Transaction Costs on Credit Cards

For those who frequently travel internationally, using a credit card is a convenient and secure alternative to cash or travelers' cheques. However, this convenience comes with costs, particularly the foreign transaction fee charged by banks and credit card networks. Here's a summary of these charges and their impact on your international expenses.

Key Highlights of Foreign Transaction Fees:

• The Foreign Currency Mark-up Fee ranges from 1.75% to 3.5% based on the card.
• A few credit cards in India offer 0% mark-up fees.
• Extra charges for international cash withdrawals include finance charges, cash withdrawal fees, and the mark-up fee.

What is a Foreign Transaction Fee?

Foreign Transaction Fees are levied by banks and networks like Visa and MasterCard for transactions made in foreign currencies or overseas. This fee covers the cost of currency conversion from the foreign to the home currency. Credit networks usually charge around 1%, while banks may charge between 0.99% and 2.5%.

When and Where is this Fee Applicable?

Foreign transaction fees apply in several scenarios:

• Retail purchases outside India.
• Online purchases in foreign currencies.
• ATM withdrawals abroad.
• Transactions at international-linked POS machines, even within India, such as at international airports.

Costs of a Foreign Transaction

The impact of foreign transaction fees can be notable. For instance, buying an item worth $100 with a 3.5% forex mark-up results in a fee of Rs. 245 (using an exchange rate of 1 USD = INR 70), plus 18% GST on the fee.

Additional Charges to Consider

• **Tax**: A GST of 18% is usually applicable on fees related to international transactions.
• **Cash Withdrawal Fee**: These are similar to domestic ATM fees but generally higher.
• **Finance Charges**: Failure to pay the full credit card balance on time incurs finance charges, which can vary.

Frequently Asked Questions (FAQs)

• Do all payment forms incur a mark-up fee? Some options like Forex cards or specific credit cards may waive this fee.
• Which is better: cash, credit card, or traveler’s cheque? Credit cards, particularly those with a 0% currency conversion fee, are safest and most convenient.
• How can I know the fees charged? Review the terms when subscribing to the card or contact your bank.
• Is there a credit limit for international transactions? Generally, it mirrors your regular credit limit, though some banks allow setting specific international limits.

Conclusion

Understanding foreign transaction fees and associated charges helps manage finances more effectively during international travel. Comparing credit cards on their foreign transaction fees can save money and improve your travel experience.