Indian travellers typically have three card options for overseas spending — credit cards, debit cards and prepaid forex cards. Each comes with a different mix of charges, convenience and protection.
Forex cards can be useful for planned spending because foreign currency is loaded onto the card in advance, generally locking in the exchange rate at that point. Credit and debit cards, meanwhile, can offer greater flexibility and serve as useful backup payment options.
But travellers shouldn’t compare the cards solely on the exchange rate offered.
“One of the most common mistakes travellers make is looking only at the exchange rate and not at the overall cost of an overseas transaction,” Deepesh Varma, Chief Business Officer – Foreign Exchange at Thomas Cook (India), told Moneycontrol.
He said an attractive exchange rate can be offset by charges such as forex markups, cross-currency conversion fees, overseas ATM charges and Dynamic Currency Conversion (DCC).
| Feature | Credit card | Debit card | Forex card |
|---|---|---|---|
| How it is funded | Credit provided by the card issuer | Directly linked to your bank account | Preloaded with foreign currency |
| Credit check | Required | Not required | Not required |
| Interest cost | Applicable if the outstanding bill is not paid in full; typically 2–3.5% | No interest | No interest |
| Foreign currency markup | Usually around 2–3.5%, though select travel cards may offer lower rates | Generally around 2–3.5% | No forex markup |
| Currency conversion fee | Applicable | Applicable | No conversion fee |
| Exchange-rate exposure | Yes; rate depends on the transaction | Yes; rate depends on the transaction | Rate is generally fixed when the card is loaded |
| Dynamic Currency Conversion (DCC) | Usually around 3.5%, depending on the issuer | Usually around 3.5%, depending on the issuer | No DCC fee |
| ATM withdrawals abroad | Treated as a cash advance and may start attracting interest immediately | Permitted, subject to bank charges | Minimal fee, typically around $2 |
| Rewards | Cashback, miles and other rewards | Limited rewards | Primarily value-back offers |
| Airport lounge access | Premium cards may offer access | Less common | Generally unavailable |
| Travel insurance | Available with select cards | Rare | Generally not offered |
| Currencies available | Usually supports foreign-currency transactions | Usually supports foreign-currency transactions | Supports multiple currencies, with some cards excluding India, Nepal and Bhutan |
| International acceptance | Widely accepted | Widely accepted | Widely accepted |
| Protection if the card is lost | Credit limit and issuer dispute mechanism provide protection | Your own funds are exposed until the dispute is resolved | Forex balance may be protected through dispute assistance and emergency cash support, subject to the card’s limits |
Source: Thomas Cook
Why forex cards can work for planned expenses
The biggest advantage of a forex card is predictability. Travellers can load foreign currency before leaving India and generally lock in the exchange rate at the time of loading.
That removes the risk of the rupee weakening during the trip for the amount already loaded. Forex cards also don’t carry the usual forex markup charged on many credit and debit cards.
They can therefore be useful when a traveller has a reasonable idea of how much they expect to spend.
Credit cards, however, have advantages of their own. They can provide rewards, airport-lounge access and travel insurance depending on the card, while also allowing travellers to spend without preloading money.
Debit cards provide similar flexibility but draw money directly from the traveller’s bank account.
Watch out for DCC
One charge travellers should particularly watch for is Dynamic Currency Conversion.
An overseas merchant or ATM may ask whether you want to pay in Indian rupees rather than the local currency. While paying in rupees may appear more convenient, the conversion can come with an additional cost because the merchant or ATM provider determines the exchange rate.
Forex markup is another important charge. This is an additional percentage levied by the card issuer when a transaction is made in a foreign currency and can typically be around 2-3.5% on credit and debit cards.
Cross-currency charges may also apply when the currency in which a purchase is made differs from the card’s billing currency.
So, which card should you carry?
There need not be a single winner for every traveller.
A forex card can be useful for the predictable part of a travel budget because it allows travellers to preload currency and avoid conventional forex markups. A credit card can complement it as a backup and may offer rewards, insurance or lounge benefits.
Debit cards can also provide access to funds in an emergency, although overseas transactions and ATM withdrawals can attract additional charges.
Ultimately, the cheapest option will depend on the individual card and its fee structure. Travellers should compare the total cost — including forex markup, conversion charges, DCC and ATM fees — rather than simply choosing the card offering the most attractive headline exchange rate.
