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Overseas holiday? The best ways to utilise funds

November 23, 2009 17:40 IST

Travelling abroad can be fun and frustrating at the same time for different reasons.

The fun reasons are obvious like the pleasure of visiting a foreign country and the exposure to new people and culture and ideologies.

However, the experience could be equally frustrating if you do not know the right options for funding your foreign holidays or the role of currency fluctuations on these options!

Ignorance on this part could finally mean you end up paying more than what you had actually intended to. So, the key lies in the getting the right information about the right options to fund your foreign trip and other related details.

Effect of currency fluctuations on your foreign holiday expenses

Consider this: till a few months ago you would have required Rs 40,000 to get $1,000 for your shopping expenses during your US travel. Now with the weakening of the rupee against the US dollar it would mean that you would require Rs 46,000-Rs 48,000 to get the same $1,000.

However, if the reverse happens that is appreciation of the rupee against the US dollar then it could prove beneficial to you.

Options to fund your foreign trip

So what are the other safe options that you could use to fund your foreign trip? International credit cards and prepaid forex cards!

As the name implies, an international credit card is used when you are traveling abroad. The biggest benefit of using this card is that you will get to pay the exchange rates prevailing on the days of using the card.

True to its name, a prepaid forex card is very similar to a prepaid phone connection where you load or prepay say Rs 100 to make calls worth that amount. Similarly, you get a prepaid forex card by loading or prepaying cash across the counter.

Unlike the international credit cards that take into account the foreign exchange rates on the day of purchases made, the prepaid forex card takes into account the foreign exchange rates on the day you load the card and doesn't change thereafter whenever you use it.

Features of international credit card

World over, it is an accepted fact that paying with plastic money is convenient and quick. But it is always better to inform your issuer of card about your travel plans to know the surcharges applicable if any.

Even with surcharges it will still be cheaper than paying with converted cash. Moreover, many international credit cards come packed with traveller-friendly features like protection against theft, travel insurance, and accidental damage of purchases.

The main features of an international credit card are it is usable in any country subject to the vendors' accepting it. There is a credit limit on an international credit card and one cannot exceed this limit.

Features of prepaid forex card

You can buy a prepaid forex card from any bank. You pay the cash across the counter and get the card. However, the card is available only in Australian/Canadian/US dollars, Swiss franc, Euro and GBP among others.

Your transactions are immediately visible on the total balance on your prepaid forex card as the transaction amount is deducted as and when it takes place. However, the usage of the card is restricted and cannot be used for availing services like hotels, hiring of cars and for certain other purposes.

Perhaps, the biggest option with prepaid forex card is that you could reload it. However, reloading during travel could be a problem if you hold a prepaid forex card from India.

You will have to contact someone to reload it for you in India and this requires furnishing some identity and related proofs. You can encash any excess balance on your prepaid forex card at the country where you bought it upon your return.

In case you use your prepaid forex card that was bought in one currency for spending in another currency you could incur a fee.

Role of currency fluctuation on these cards

There are two situations that could be employed to understand the role of currency fluctuation on these two types of cards.

Situation 1: We when there is appreciation in the value of rupee against another currency say US dollar

In the case of prepaid forex card, which takes into account the foreign exchange rates on the day you load the card, any appreciation in the value of the rupee would mean you lose money.

For example, you buy a prepaid forex card at Rs 49 per US dollar before you travel. And during your travel if the rupee appreciates to Rs 45, you lose out on the difference. In other words you will be paying Rs 4 more for every dollar.

In the case of international credit card, you are protected against the fluctuation as you will get to pay only at the exchange rates prevailing on the days of using the card.

Situation 2: When there is depreciation in the value of rupee

Here, the reverse happens. Prepaid forex card holders will benefit when there is depreciation in the value of rupee. You would purchase only at the value of the card when it was purchased. For example, if you had bought at Rs 49 per US dollar it will remain at the same value even if the rupee depreciates to Rs 54 per US dollar.

In this scenario, the users of international credit card will have to spend more as the card will take into consideration the exchange rates prevailing on the days of purchases.

Procedure to obtain these cards

If you want to buy an international credit card then you will be required to contact a bank, follow the procedures like filling up the forms, submission of the required proofs, and if everything is satisfactory the bank will process your request and issue an international credit card within a stipulated time frame. Most credit cards are valued internationally.

ICICI Bank, HDFC Bank and State Bank of India (SBI) offer prepaid forex cards.

The procedure to obtain a prepaid forex card would be to approach the bank's branch, fill up the form, submit the required documents and pay the cash and the card will be immediately activated.

But if you are looking for funds beyond Rs 50,000 then the banks might require some additional documents like the PAN card.

Which card is best for you?

Well, it depends and each has its own advantages and disadvantages. Moreover it is very difficult to predict the course of the exchange rates in the near future!

However, if you are someone having a budget for your foreign travel then prepaid forex card might just be right for you as it protects you from the fluctuations of the exchange market.

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