HOW SHOULD YOU PAY FOR YOUR OVERSEAS ONLINE PURCHASES?
When you are making purchases on an overseas website, you should be paying using a multi-currencies debit card. If you use a credit card, you are likely to pay around 5% more than the checked out prices. Before the exchange rate differences kicked in, we are already paying admin fees to the bank, at about 2-3% of our purchased value. Exchange rate difference is about 2%. So the amount we paid in total for our online purchases is about 105% of the check out value.
Should you be concerned over this 5% markup?
It depends on individuals. For USD 1000 purchases, it amounts to USD50. If your purchases over a period of time and the total amount spent, say over a year, adds up to USD 10,000, you will be paying an extra USD 500 for your purchases. If you think this is worth it for the convenience, then you don’t have much to fret about. But if you think that USD 500 per year is an amount you can put to better use, read on.
What the bank charges you on credit card purchases?
When you use the credit card on a foreign currency purchase, the bank will charge you an admin fees over 3% of your transacted prices. This fee is usually published deep within the terms and conditions of your credit card document, which is usually skipped by most of us. I only found out recently when I called up my bank regarding this. I tried to hunt for a credit card without this admin fee and was unsuccessful in my search. Not only is there a charge for admin fees, you are also charged by the credit card company/bank for the exchange rate difference, which usually come up to about 2%. This exchange rate is difference is also found when you go to the money changer. They have a buy price and a sell price.
Not happy that I have to give away 3% (exchange rate difference was acceptable to me), I decided to check out ways to save on the admin fees. After an extensive search, I stumbled upon multi-currencies accounts.
How much am I going to pay to maintain these accounts?
Is there any savings using this option?
Those were the questions that came to my mind. As I probe further, I know I have gotten my answer. Debit cards tied to multi-currency accounts are the way to go. You are in control of the currency rate. You buy the currency based on the preferred rate and use them to pay for your foreign currency purchases. (Just like you change money at a money changer and pay for your holiday in cash). You do the conversion as and when you need them and at rates that you know upfront. When I checked on the rates, I found that most of the cards offer rates better than the credit card rates, especially if you are buying non-US currencies items. The credit card will convert your foreign currency to USD first and then to SGD (Local) currency. I googled and picked 6 multi-currency accounts for comparison and found that the exchange rate offered by 5 of the 6 accounts offered exchange rate within than 0.5% difference from the best money changer you can find in Singapore. They are Revolut, Global Wallet (Citibank), TransferWise, Youtrip (Ezlink)and TravelFX (RHB ). All except Citibank Global Wallet do not need you to maintain minimum account balance and do not charge for account fees too. But they are not backed with a deposit insurance of S$75K like Citibank.
More details of the debit cards can be found here.