Forex options-ATM Withdrawal vs Forex Card vs Currency Conversion

Local currency is very much needed during international travel. There're multiple ways to get our forex- the old fashioned way of going to a forex agent and converting INR to required currency, going to a bank to get Forex Card, withdrawing from local ATMs or the newer ways of ordering forex online. Which one is good? What are the pros and cons? This post attempts to list them and analyze a bit.

Below are the 8 different options I could think of to get local currency.

#	Forex Option	Cost	Pros	Cons
1	Withdraw from ATM at destination	One time fee per withdrawal, usually between Rs 150 to 400 + GST + unfavorable conversion rate	Most convenient No premium at airport Work out better if you can withdraw all the cash you need in one shot	Fee is per withdrawal- not economical to withdraw small amount multiple times Max amount limited to your card’s daily withdrawal limit Unused cash- what to do? Risk of skimming
2	Forex Card	Factored in currency conversion rate Ex: if market rate is 69 INR per USD Bank will charge 70 INR per USD	Can support multi- currency Unused value can be recovered in INR Can be reloaded on demand Safer than carrying huge amount of hard cash Can get a statement documenting transactions	Not everyone accepts card-some hard cash is still needed Card payments may cost extra in some outlets Works well in Europe, US but not well accepted in Asia where cash is preferred
3	Buy hard currency online like bookmyforex.com	Factored in conversion rate like above	Convenient to order online	Fee is usually factored in conversion rate, though advertised as “no fee” You’ll pay more than what it costs to walk to a forex shop n convert Less popular currencies may not be available
4	Buy hard currency in a currency shop	Conversion rate + processing fee + GST	A bit cheaper than #3 usually Provision to bargain a bit	Need to go to shop in person Need to provide passport, ticket details, PAN Less popular currencies won’t be available. Getting USD and then converting to local currency is double expense
5	Use debit/credit card	Unfavorable conversion rate + fee + GST Usually around 4-5% extra	Convenient	Risk of data theft (skimming) Some hard cash is still needed Banks will charge their own conversion rate + fee + GST on fee for each transaction
6	Airport Currency Exchange Counters	Very poor conversion rate	Convenient	Most expensive option- to be used only in case of emergency
7	Keep large stock of USD/Euro etc and convert to local currency at a forex shop in destination	Depends	Convenient to convert small values on need basis	Possible scams in some countries like Bali Conversion fee once to get USD, once again to get local
8	Borrow from a local friend, transfer to his Indian account	None/minimum	Might work only if you’re visiting a good friend	Not a legal way-sounds like hawala Not possible all the time

Which one is cheapest?

I used to go for the old fashioned #4 earlier. At recent times I prefer ATM withdrawal. There is no such thing as ‘cheapest’ option- each has its pros and cons. Currency rates fluctuate daily, different operators apply different conversion rates-many who claim not to charge any fee factor their charges in the conversion rate itself and give you a few dollars less.  Plus if you’re going physically to a forex shop you’ve to consider time and effort involved. Some of them do door delivery if you request. So there’s a cost to convenience factor.

ATM withdrawal Experience

Recently I withdrew 25000 Nepali rupee in an ATM in Kathmandu- ATM prompted that there’ll be a fee of 500 Nepali rupee. But in reality this withdrawal cost me 16750 INR after ICICI bank used its own conversion fee, added 125 INR fee and 25 Rs GST. Typical conversion rate used in Nepal is to divide by 1.6. That is 25000 Nepali rupee should have cost me 15625 Rupees + 312 Rs Nepal bank’s fee + 150 INR ICICI fee+GST. But I paid an effective INR 1125 more, because banks use unfavorable conversion rates and try to make some more money in the process. Effectively I got only 1.5 Nepali rupee instead of 1.6 per 1 INR.

I feel ATM withdrawal is still good option particularly if your local forex vendor doesn’t have stock of currency you need. Getting USD and then converting local again will mean paying twice for conversion.

Credit card usage:
A 77 USD WestJet ticket was supposed to cost me INR 5390 as per prevailing conversion rate at the time of transaction, but actual charge by ICICI was INR 5568, or roughly 180 INR or 3% more. At times it may be cheaper to get forex and pay in cash.

Had to pay about 4% extra on ICICI card for tickets purchased on Air Asia, paid in MYR, USD, THB etc- markup fee + 18% GST...

Forex Card:
Forex Card are good option- can be reloaded as needed, unused amount can be recovered, once loaded deducted at actuals.

But Forex card works best in select regions- Europe, UK, Singapore, US etc. Many Asian countries where  cash is the preferred mode, Forex Card may not be viable.

Buying Hard cash also involves similar cost

While today’s USD to INR conversion rate is 1 USD=68.95 INR as per google, if I want to get cash from a forex shop, they charge a higher fee of 69.45 INR per dollar + a fee+GST (Prithvi forex, Chennai for 19 March 2019). This 50 paise per dollar is their profit. Online shop like bookmyforex charges even higher 69.9 INR per USD while they claim not to charge any extra fee. (There's no such thing as free meal- everyone got to make money somehow)

Forex Card are also a good option- but you’d still need some cash as not everywhere card is accepted or welcome. Card can be used in most places in Europe but in Asia vendors prefer cash- this is because paying by card implies banks take a cut for each transaction, on top of what you’ve already paid for the card-so some vendors charge 1 or 2% extra for card payment, if they don’t have enough margin to factor bank’s charge.

Unpredictability:
The actual savings in any mode is hard to predict due to regular currency fluctuations. Best is to use a mix of card & cash.
Consider this- You bought USD at 70 INR per USD- now if USD becomes 75 INR/USD you get to save as you've bought USD at lower rate. If it becomes 65 INR/USD you loose. On card transactions, if it gets 65 INR/USD you save, while you will have to spend more in case USD gets to 75 INR/USD. So have a mix, if USD gets cheaper, use card, if it gets expensive, use more cash.

Rule of thumb

• Airport conversions to be avoided at all cost as they are most expensive option. To be used only in case of emergency for a small amount.
• Ordering online is convenient, check how much extra you’ll be paying compared to your neighborhood forex agent. If the difference is not too much and you feel the time and effort you’ve to spend to go out to a forex shop is more valuable than extra premium charged by online firm, go for it- you can also try negotiate.
• If you’re frequent traveler and if rupee value is at decent level, it might be good idea to stock a few hundred dollars. Accepted worldwide and can be converted for local currency at destination on need basis. Given that you’ll be paying twice- once to get USD, once to get local currency, this option is not economical if you’re spending large quantity of local currency.
• ATM withdrawal is a good option- charges are fixed and per withdrawal- limited to your withdrawal limit- can be tried if you can manage entire trip with amount possible in withdrawal and you’re fine with some leftover/unused local currency. Not worth if you’re withdrawing small amount or withdrawing too many times.
• Where possible network with friends who may have unused local currency or can give you local currency in exchange for you paying them in INR.
• International credit cards can be used for online purchases. Factor 3-4% extra expense as bank will add some fee/use an unfavorable conversion rate.
• Prepaid Forex Card are good option- particularly for corporate travel or if your travel is long term or estimated expense is hard to predict (top up on need basis, recover unused amount)- but not possible to rely 100% on these- many vendors prefer cash.

One big dilemma with hard cash is what to do with leftover foreign currency notes?

If it is small amount you can keep them as souvenirs.  If you have plans of visiting same country again, you can of course re-use them. It might be worth storing some currencies- currencies like USD/Euro are almost guaranteed to appreciate over time. USD is 68 INR today, may probably get cheaper to 65 INR per USD but if you hold for a few years, it will almost certainly be worth 75-80 INR. (unless something drastically changes). Whereas less popular currencies no one wants to buy and will be useless unless you visit that country again.

One way to salvage this is to convert them during transit- like you may not visit Philippines again- but if you have some Philippines currency you can possibly convert them while transiting through hub airports like Singapore or Kuala Lumpur- you will get poor rate but better than losing it all.

One more risk is demonetization. Maldives had stopped old 5 rupaiya notes- I had 4-5 of them and they are worthless now. If it happens with bigger currency notes and you have many of them, you carry a risk of losing it 100% in value. I do hold bit of currency notes from various countries I have visited- not sure which one of them are already demonetized or have lost their value completely.

Do share your thoughts... What is your preferred mode of getting forex?