This article was written in collaboration with DBS. All views expressed in the article are the independent opinion of DollarsAndSense.sg
Over the past few years, online shopping has become more popular in Singapore.
Whether it’s grocery shopping on RedMart for bulky items like rice and diapers or logging on to Taobao for cheaper household products, the cost savings and convenience we enjoy from online shopping has made stepping out of our homes an option rather than a requirement.
Online shopping also allows us to buy items not commonly found in Singapore. Be it a book from Amazon, second-hand products from eBay, clothes from ASOS or just about anything from Alibaba, you can buy items from around the world through a simple click on your computer.
Most of the time, products sold online might seem cheaper. However, we need to be aware that we could be paying more than the quoted price. Here are 4 reasons why.
#1 Foreign Currency Conversion Spread…Twice
Whenever we buy products from an online shop based overseas, we have to transact in foreign currency. For this, we need to convert our Singapore Dollar (SGD) to the foreign currency we need.
Foreign currency conversion comes at a cost. This in the form of a conversion spread. For example, if the exchange rate between the US Dollar (USD) and the SGD is at 1.35, we may see the following rates at the traditional moneychangers.
|We Sell||We Buy||Spread|
This means the moneychanger is selling us 1 USD at 1.36 SGD but will only buy from us 1 USD at 1.34 SGD, giving them a profit of 0.02 SGD for every 1 USD traded.
The same concept applies to online purchases made using credit cards. Though many of us don’t see it, a conversion spread is included whenever we use our credit cards overseas.
Another thing many Singaporeans don’t realise is the process of how currency conversions are done for credit card transactions. If we make an overseas purchase that is not in USD, the foreign currency that we use is first converted to USD, before being converted to SGD and charged to our credit cards.
In effect, what that means is that we are paying the conversion spread twice, not once.
#2 Foreign Currency Transaction Cost
Most credit cards in Singapore charge a foreign currency transaction fee. This is an administrative fee charged by the bank and the credit card companies for using our Singapore credit cards to make a purchase in a foreign currency.
We can expect these rates to be around 1.5% to 3% of purchase price.
#3 Shipping Fee
Shipping fees is often the key factor for whether or not an online purchase is economically viable. At times, the cost of shipping may not be shown until we are done with our selections of products and ready to check out.
One strategy many online stores employ is to provide free shipping once shoppers hit a minimum order. For example, Amazon offers free shipping for orders in Singapore that is $125 or more, and if shoppers group their items into as few shipments as possible and send it to a single address.
Not all e-commerce businesses have the logistics and shipment capabilities of Amazon and Alibaba. Smaller online stores often have little choice but to pass the full cost of shipping to their customers, thus making a competitively priced product unattractive.
We can reduce the cost of shipping by ensuring that our order size is big enough to 1) qualify for free shipping or 2) bulk order with friends so that shipping fee can be split.
#4 GST Charges
Whenever we buy a product from brick-and-mortar stores in Singapore, a Goods and Services Tax (GST) charge is included in the total price that we pay.
When we find a similar product online, we may see a lower price. Very often, the price reflected does not include GST charges (yet). That’s because online stores would not know where their customers are from, and the associated custom tax that will be incurred if the product is exported to the country.
For example, if we buy electronics from an overseas online shop for $1,000, we will be required to pay the 7% ($70) GST charge. That means if the same product is selling for $1,050 in Singapore, buying from the local store will actually be the cheaper, not the more expensive, of the two.
To save some money on GST charges, it will be of interest to note that according to IRAS, goods assessed with a value of $400 or less will be exempted from GST, while those above $400 will be subjected to the full GST charge.
|Cost Of Goods||GST Amount||Total Cost|
To Recap, These 4 Hidden Costs Are…
Be A Smarter Online Shopper By Using The DBS Multi-Currency Account (MCA)
On one hand, the convenience, access to global products and potential cost savings you enjoy can be extremely valuable. At the same time, if we are not careful of the hidden costs we may incur, we could end up paying much more than what we originally expected to.
The good news is that once we are aware of these hidden costs, there are actions you can take to make yourself a financially savvier online shopper.
One way to save money is to use the DBS Multi-Currency Account (MCA). This account allows users to hold popular and commonly used foreign currencies such as the USD, Japanese Yen, Australian Dollar and the Euro.
If users link their MCA account to their DBS Visa Debit Card, they can pay for their overseas purchase using their DBS Visa Debit card. This allows them to pay for products directly using foreign currency they hold in their MCA account. Hence, they avoid incurring any foreign currency transaction cost as well as the double currency conversion spread.
Saving A Little On Each Transaction Can Go A Long Way
Whether it’s opening a Multi-Currency Account and linking it to our DBS Visa Debit Card to save on foreign currency conversion and transaction cost, or making sure our order size is small enough to avoid GST charges, but large enough to earn free shipping, the small little things we do can add to a significant cost savings in the long run.
Bonds and Fixed Income