So you had a nice trip to Europe. This vacation plan was due since long and you enjoyed it to the hilt. Apart from site seeing and fine dining you made a killing at shopping too. Your so called best friend “The International Credit Card” was doing the magic for you. You are smart enough and were noting the exchange rate on the day you were making purchases. You have done your conversions and are sure about your credit card bill in INR terms (Say X).You receive your credit card statement, but you are shocked to see the due amount.

This amount is nowhere round X and over shoots it in the range of 5 to 6%. You are confused and simply don’t know where calculations went wrong. In this article we will try to answer this question and find out how exactly amount on your credit card is calculated.


Why your calculated value and amount on the credit card statement differ?

There are two important bodies involved in any credit card transaction, first, issuing bank (like SBI or ICICI) and second, network service providers (like VISA and MasterCard).They apply additional charges for a foreign credit card transaction resulting in 5 to 6% increase in due amount.


Why additional fee is applied?

The primary reason for additional fee is cost involved with currency conversion. Another reason is addition of a small margin of profit by the issuing bank and Visa/MasterCard.


What is the type and amount of charges involved?

There are basically three types of charges involved:

  1. Foreign Currency Conversion fee - Since you own an Indian credit card, your balance is automatically in Indian Rupees. When you do a transaction overseas, say 50 Euro you will have to pay foreign currency conversion fee as well. Visa and MasterCard automatically charge 1-2% fee on foreign currency exchange and anything in excess of it is generally a small margin of profit for the bank.
  2. Foreign Transaction Charge - Irrespective of the currency, transaction amount, or cash withdrawn, providers (SBI, ICICI, HDFC, BOB, PNB, City Bank etc.) charge a Foreign Transaction charge, which adds clean 2.5 -3.5% figure to the total transaction amount.
  3. Cash Advance Fee- It’s evident that cash advances are expensive even in domestic country. If you are using your credit card overseas, you will have to pay 1%-4% additional fee every time you carry out an overseas cash withdrawal. You will also be paying the standard cash withdrawal charges for your credit card along with the international cash withdrawal fee.


What about the currency conversion rate on the day of transaction?

The exchange rate that is applied to a transaction is the exchange rate as of the day of settlement which is the day that VISA or MasterCard determines the settlement amount to be exchanged between the acquirer and the issuer. The settlement date is therefore typically different from the date of the actual transaction. So don’t be surprised if the exchange rate you were using for calculation differs from what has actually been used. Your transaction might have been posted to VISA or MasterCard after one or two days by your merchant. The exchange rate is calculated one day in advance by Visa and MasterCard and is applicable throughout the day for every transaction at the same rate.


Where to find out the information regarding these charges?

To avoid surprises in future it’s advisable to get full details of charges which will be applied on your credit card transaction. Data of Foreign Currency Conversion fee is available on VISA and MasterCard web sites. Please refer it just before you travel as these rates keep on changing.

Data of Foreign Transaction Charges and Cash Advance Fee is available with the issuing bank like SBI, ICICI, etc. You should call their customer care to know about the charges before packing your bags. These charges are also dynamic and you might see them fluctuating at regular intervals.


How to choose the best credit card?

If you are a frequent flyer please enquire about the foreign transaction charges and cash withdrawal fees before applying for the card. You might find a difference of 1 to 2% in the offers of credit card by various banks. Choose the one which charges you the minimum. You cannot do anything about the currency conversion charges as they are levied by MasterCard and Visa.

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