Forex cards are a popular means of carrying foreign currency while traveling abroad. The card is pre-loaded with the chosen foreign currency, and the user can use it to withdraw cash or make payments at merchants that accept the card. However, there are various fees associated with forex cards, such as ATM withdrawal fees, balance inquiry fees, and cross-currency conversion fees. In this article, we will discuss cross-currency fees in forex cards in detail.
What are cross-currency fees?
Cross-currency fees are charges that are levied by banks or forex card issuers when the cardholder uses the card to make a transaction in a currency other than the currency loaded on the card. For instance, if a user who has loaded their forex card with US dollars uses the card to make a purchase in euros, a cross-currency fee will be charged.
The fee is a percentage of the transaction amount and is typically around 3-5%, with some banks charging even higher fees. The fee is calculated based on the exchange rate applicable at the time of the transaction. The exchange rate used for calculating the fee may be different from the rate used for converting the transaction amount into the card’s base currency.
Why are cross-currency fees charged?
Cross-currency fees are charged by banks and forex card issuers to cover the cost of converting one currency into another. When a user makes a transaction in a currency other than the card’s base currency, the bank or card issuer has to convert the transaction amount into the base currency. This involves buying the foreign currency in the market and then selling it to the user in exchange for their base currency.
The bank or card issuer incurs a cost in buying and selling the foreign currency, and the cross-currency fee is charged to cover this cost. Additionally, the fee also serves as a profit margin for the bank or card issuer.
How to avoid cross-currency fees?
Cross-currency fees can add up to a significant amount, especially if the user is traveling to multiple countries or making frequent transactions in different currencies. However, there are ways to avoid or minimize these fees.
1. Choose the right forex card: Some forex cards offer zero or lower cross-currency fees compared to other cards. It is essential to compare the fees and charges of different cards before choosing one.
2. Load multiple currencies: Some forex cards allow users to load multiple currencies on the same card. This can help avoid cross-currency fees as the card can be used to make transactions in the currency loaded on the card.
3. Use local currency: When traveling to a foreign country, it is advisable to use the local currency for transactions, as it may be cheaper than using the forex card. Many merchants and ATMs may offer the option to convert the transaction amount into the card’s base currency, but this may attract a higher exchange rate and cross-currency fee.
4. Plan transactions: It is essential to plan transactions in advance and avoid unnecessary transactions in a foreign currency. This can help minimize cross-currency fees and save money.
Conclusion:
Cross-currency fees are an essential aspect of forex cards, and users should be aware of these fees before using the card. It is essential to choose the right card, load multiple currencies, use local currency, and plan transactions to minimize these fees. By doing so, users can save money and make their travel abroad hassle-free.
