Over the past decade, the increasing acceptance of credit card as a mode payment has taken off in most developed countries.
In Singapore, the usage of credit cards for daily spending such as grocery shopping, pumping petrol and dining expenditure has become the norm. This can be attributed to the discounts, perks, cash rebates and convenience users enjoy when using credit cards. Most, if not all credit cards offer some form of incentives to their users.
Regular readers of DollarsAndSense.sg will know that we are huge advocates of the use of credit cards, so as long as you are disciplined enough to control your spending.
Read Also: Why I Stopped Withdrawing Money From The ATM
But what about the use of credit cards while overseas? Should we be using it just like we do in Singapore?
Reasons For Using Your Credit Card
(1) Safety & Convenience
The best reason for using your credit card overseas is the convenience and safety that it provides. Most places around the world are not as safe for foreigners who are not as savvy about the places to avoid. Heck, even in Singapore you can lose alot of money from being robbed in daylight (Read More: The Economics Behind Sim Lim Scams)
Even in safe cities such as Tokyo or Seoul, common sense should prevail. For most of us, having in excess of S$1,000 in our wallet in Singapore is not common. Yet most of us would be carrying similar amount while traveling overseas.
Having a credit card helps us reduce our dependancy on cash while traveling in unfamiliar place.
(2) Credit Card Perks
While traveling overseas, most of us would usually spend more than we typically do in Singapore on food, shopping and entertainment.
Credit card companies know this and are quick to pounce on the opportunity to convince us to use our credit cards for these things. It is common to see miles related cards like the Amex Krisflyer and the Citi Premier Miles giving additional points for each dollar spent overseas.
For example, Citi PremierMiles provide 2 Citi Miles for every S$1 spent overseas, compared to 1.2 miles for every S$1 spent in Singapore.
In addition, these credit cards provide basic overseas insurance when you booked your flights using the card.
(For a guide on getting more miles for your money, read: How To Fly Business Class For Free Using Credit Cards)
Reasons For NOT Using Your Credit Card
As compared to the reasons for using your credit cards while overseas, the reasons for NOT using your credit cards while overseas are not as well publicised. Not surprisingly, banks and credit card companies do not eagerly share with us the reasons why we may not want to use our credit cards while traveling.
(1) Double Conversion For Foreign Currency Exchange Rate
Most credit card users would know that banks and credit card companies take a profitable spread on the foreign exchange rate each time we use our credit card overseas. For example, if we use our Singapore issued credit cards in Korea, the banks will convert the Korea Won we have used to Singapore Dollar and charge us the amount in our next bill.
What most of us don’t realise is that the bank actually converts the money we have spent to US Dollar first, before converting it to Singapore Dollar. So unless you are getting charged in US Dollar, you are actually facing the conversion rate TWICE, not once.
(2) Foreign Currency Transactions Fee
If you are a frequent user of credit cards overseas and don’t already know this, be prepared to get shocked.
Most, if not all, credit cards in Singapore have this thing call the foreign currency transaction fee. Long story short, this is basically an administrative fee charged by the bank that issued the credit card for the overseas transactions that you made.
The rates vary from each bank and also differ depending on whether you are holding a Visa, MasterCard or American Express card. By and large, you can expect the rates to be between about 1.5% to 3% of the amount you spent. Do note this is on top of the currency conversion fee that you are already paying highlight in point (1) above.
Now you know why the banks and credit card companies are giving you the free miles for overseas spending.
Should I Still Be Using My Credit Card While Overseas?
Before you cut up all the credit cards that you have been using while overseas, do calm down first and let us explain why you should not just boycott the use of credit cards while overseas just yet.
Firstly, even if you do not use a credit card while overseas, it is worth remembering that you cannot escape from the fact that you will still incur some currency conversion cost. Even the best moneychanger in Singapore will still charge a foreign exchange spread. In addition, when you are changing for cash, you run the risk that you change too much and end up with alot of unused foreign currency at the end of your trip which you may spend on things you do not need, just to get rid of it. So yes, the banks and credit card companies may not be giving the best rates, but it’s not like you wouldn’t be incurring some inefficiency anyway.
Secondly, while you do incur additional cost via the foreign currency transaction fee imposed by the bank, it is worth remembering that you do get some perks (e.g. airmiles) for using the card.
Here is a simplified example. Assuming you spend $1,000 overseas, you would get 2,000 miles. If you are charged 3% for the overseas transactions, you are in basically paying $30 for the 2,000 miles. Based on this rate, you would be paying $300 for 20,000 miles, enough for a return ticket on Singapore Airline to nearby places like Indonesia. If you use cash, you don’t get any miles.
Unfortunately, if you are looking for a direct “Yes” or “No” answer to whether or not it is worth using your credit cards overseas, we are not going to be able to give that answer to you. The terms & conditions given by these financial institutions are too extensive for us to analyse in details. Different banks have varying ways and rates of charging their customers for overseas transactions.
Our opinion is that if you are intending to use a credit card while overseas (which we think is a safer option to avoid carrying around too much money), make sure you get a good travel credit card that gives you additional miles and free travel insurance. It’s a competitive environment so you might as well enjoy the perks if you are paying extra for the convenience.
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