Going abroad? Tips for buying forex
Free home delivery, the lowest charges, and crisp notes – the promises from forex dealers are no different than those of pizza shops. Here’s what you need to know before buying, though.
Foreign exchange (forex) transactions have the tendency to worry travelers. You can always feel that you’re going to get cheated. Then there’s always the fear you’ll lose your bag or be pick-pocketed. Also, when is the right time to buy currency? We answer all these questions in our tips on buying forex.
Where to buy from? Of the legal channels, there are (least to most expensive) full-fledged money changers, banks, travel agents and airports. Each of these channels will offer you a different rate, even though the convenience, safety, and assurances are the same. If the rupee is trading at Rs61.5 per USD, the money lender might have only a Rs0.10-Rs0.20 margin, but the airport could have a margin of Rs3 per USD. So if you are buying $2,000, you would be losing close to Rs9,000 during the transaction. Always insist on a receipt. You’ll need a copy of your passport, visa and return tickets at the time of purchase.
Avoid unauthorised dealers: If you buy from an unauthorized dealer, you run the risk of carrying counterfeit notes. If a counterfeit note is found when using overseas, authorities could always ask you for a receipt. In its absence, it will be construed that the money has been bought from the grey market.
Avoid your credit card: You might have an international debit/credit card, but these cards have a cross-currency charge of 3.5%, aside from the margin on the forex rate, which would make your withdrawal 5-6% more expensive than buying it at first. If, however, you are averse to carrying a lot of currency, you can opt for a travel card. These are prepaid cards, so the forex rate is locked at the time you load the card, allowing you to swipe freely while you’re abroad. Banks will also give you a discount of around Rs0.3 per USD if you opt for this.
Cross currency: If you’re travelling to any country where dollars, pounds, yen and euros aren’t readily accepted, the prepaid forex card becomes useless. This is because you’d still need to change the money you withdraw for the local currency every time you swipe. So the charges would largely be the same as they would be with a credit or debit card. So there’s no point getting a prepaid card in this case.
Reserving forex: Certain financial institutions offer you the right to ‘reserve’ your forex online prior to collection. This means that they will offer you a better rate than the store rate as a reward for reserving. However, the rate will still be the rate as on the date of collection. Thus, effectively while they will add a lower margin to the rate, the base rate will not be that as on date of ‘reservation’.
Free home delivery: A convenient facility, most large institutions offer free home delivery of currency, but you’ll need to change at least Rs50,000 to be eligible.
Buyback option: Another facility offered by some (Travelex, for example) is the buy-back of currency at a better rate than the ongoing cash buy rate on the return from your holiday. While this sounds good theoretically, consider the option of carrying cash only to the extent required and taking any ‘safety’ amount in the form of a traveler’s cheques as these can be easily encashed if left unused and usually at a better rate.