Overseas Transactions: Are Multi-Currency Cards Better Than Credit Cards?

This post was originally published on my blog at thefrugalstudent.com.

For local spending in Singapore, it’s widely agreed that paying with a local credit card has several benefits as compared to paying with a local debit card such as better card rewards and customer protection.

But what about overseas spending?

Many people choose to use multi-currency cards in such cases, but are they really better than paying with a credit card?

What Are Overseas Transactions?

First, let’s define what overseas transactions are.

There are 3 types of overseas transactions: foreign currency (FCY) transactions, direct currency conversion (DCC) transactions, and overseas SGD transactions.

Foreign Currency Transactions

An FCY transaction is any transaction that is in a different currency than the local currency.

In the case of Singapore, this means that a transaction that is billed in any currency other than SGD is considered an FCY transaction.

For example, when you shop on TaoBao and are charged in Yuan, it is an FCY transaction.

Direct Currency Conversion Transactions

DCC is a service offered by some merchants and websites that convert an FCY transaction into your local currency.

This means that instead of being billed in a foreign currency, the bill would first be converted to SGD, and then charged to you.

For example, if you’re shopping in Paris and are buying something that costs 100 EUR, you can convert that 100 EUR to an equivalent amount in SGD via DCC and pay in SGD instead.

Overseas SGD Transactions

This refers to transactions that are billed in SGD (with no currency conversion involved), but for some reason, are processed outside of Singapore.

Companies that have operations in Singapore but have their payment processing facilities overseas could be an example of such cases.

Overseas Transaction Fees

The main difference between overseas transactions and local transactions is that with the former, there are a number of fees that are applicable on each transaction, while there are no applicable fees on the latter.

These fees associated with overseas transactions inflate their cost by making them more expensive than they actually are.

But why are there fees in the first place?

When we use a locally-issued card, payments are always settled in our local currency (SGD).

The banks that issue them also operate locally and have payment transaction facilities within Singapore.

Whenever we make a transaction that is in a foreign currency and/or processed outside of Singapore, there is additional work that is required to process it.

This translates into an additional cost that is passed on to us, the consumer.

So, what exactly are these fees?

Foreign Exchange Rates

One of the applicable fees on overseas transactions is the foreign exchange (FX) rate.

FCY and DCC transactions require currency conversion before you are charged the final amount in SGD.

This means the final amount charged to your card is subjected to the FX rate that is used in the conversion.

In other words, this isn’t a fee that is explicitly charged to you, but rather, is implicitly expressed in the SGD-converted amount that appears on your card statement.

Since the total cost you pay is dependent on the FX rate that is used, if you can optimize the FX rate, you can minimize the FX cost incurred by you.

It’s worth noting that different entities use different FX rates when converting currencies.

When you pay directly in foreign currencies (ie via an FCY transaction), the currencies are converted by your card network – Visa, MasterCard, or American Express (AMEX).

These card networks tend to use the mid-market rate, which is the rate you see when you make a search online.

Meanwhile, when you make a DCC transaction, the currencies are converted either by the merchant or by the DCC provider – not by the card network.

It’s a consensus that these rates are significantly worse than the mid-market rate as they charge a markup in order to make a profit, as shown by the results of a quick Google search.

This so much so that even though the fees for DCC transactions tend to be lower than that for FCY transactions, it's still recommended to transact in foreign currencies as compared to a DCC transaction.

Admin Fees

As mentioned earlier, the additional work required to process overseas transactions is passed down to consumers, which is done through administrative fees.

Overseas transactions may incur admin fees charged by both the network operator and issuing bank of your card.

For example, if you use a MasterCard issued by Citibank like the Citi Rewards card to make an FCY transaction, you will be charged an admin fee by both MasterCard and Citibank.

However, banks often express the applicable fee as a single amount which can be found on the bank’s website.

Here is a list of the overseas transaction fees charged by various banks:

We can see that HSBC charges the lowest fees across the board at 2.8% for FCY transactions and 1% for DCC or overseas SGD transactions.

What Is A Multi-Currency Card?

A multi-currency card is a card that is able to process transactions in various currencies, usually at no cost to the consumer.

This means that there are no administrative fees applied to each transaction regardless of the currency it was processed in.

However, there are still implicit fees in the form of FX rates, though many multi-currency card providers tend to offer rates close to or equal to the mid-market rate.

Some multi-currency cards like YouTrip and Revolut also allow you to store different currencies in them via a mobile wallet feature.

Amaze Card

Throughout this post, when I refer to multi-currency cards, I may mention that the amaze card is an exception.

This is because the mechanics behind how the amaze card works is quite different compared to other multi-currency cards, and I won’t be explaining these differences in this post.

I wrote a whole post about the amaze card, so if you want to find out more about it, you can check it out here.

Otherwise, here's a summary of the card:

• Link up to 5 MasterCards as the payment source
• No foreign transaction fees
• Earn InstaPoints on FCY transactions at a rate of 1% cashback on transactions of 10 SGD or more
• Earn credit card rewards simultaneously

Multi-Currency Card VS Credit Card

Now that we know the basics of a multi-currency card, let’s dive into some of the differences between them and credit cards.

Transaction Fees

The biggest difference between multi-currency cards and credit cards is probably fees.

As mentioned earlier, overseas transactions tend to incur administrative fees, which make them more expensive than they actually are.

These fees are applicable on most regular credit or debit cards.

Multi-currency cards, on the other hand, do not charge such fees on overseas transactions, and this essentially allows consumers to execute the same transactions at a lower cost as compared to a credit card.

Both multi-currency cards and credit cards will be subjected to implicit fees in the form of FX rates when performing overseas transactions, so the total cost of an overseas transaction is dependent on the conversion rates that are used.

Card Rewards

While you have to pay some fees for making overseas transactions with credit cards, the good news is that you’re still able to earn credit card rewards on these transactions.

As long as you make an eligible transaction to earn rewards, it usually doesn’t matter whether the transaction was performed locally or overseas – unless the terms & conditions of the card explicitly state that it only earns rewards on local transactions.

Off the top of my head, I’m not aware of any credit cards that make such exclusions.

For example, the Citi Rewards card earns 4 miles per dollar (mpd) for shopping transactions both locally and overseas.

If I were to shop at Uniqlo and pay with my Citi Rewards card, I’ll earn 4 mpd regardless of whether the transaction was made in Singapore or in Japan.

The only difference is that the transaction made in Japan would incur fees while that made in Singapore wouldn’t.

However, multi-currency cards usually don’t earn rewards – at least, the good ones – with the exception of the amaze card.

Cards like YouTrip and Revolut that offer mid-market FX rates generally don’t net you any rewards for your spending, though there may be occasional promotions with specific merchants.

Other multi-currency cards offered by banks may earn rewards, but the FX rates used by these cards don’t usually come close to the mid-market rate as the banks charge a markup on their rates to earn a profit.

Source Of Funds

Another difference between multi-currency cards and credit cards is their source of funds.

Other than the amaze card, most multi-currency cards function like debit cards - they require you to fund your account with money before you can transact with them.

If your account doesn't have enough funds for a particular transaction, the transaction will fail.

Meanwhile, credit cards don't require a source of funds - your transactions are first paid for by the bank, and then you will pay the bank back when your credit card statement is due.

So you won't have to worry about having enough money on your credit card to perform a transaction as long as you're not exceeding your credit limit.

Fraud Protection

This point builds off of the previous one.

Credit cards offer better fraud protection for consumers than multi-currency cards (ie debit cards) because credit card transactions aren't paid using your money.

If you become a victim of card fraud, in the case of a credit card, you haven't lost any money - it's the bank's money that has been used.

There's also a good chance that the bank won't make you pay for these transactions.

Meanwhile, for multi-currency cards that function like debit cards, every transaction that is made means your money is leaving your account, and once it's gone, it's hard to retrieve.

I recently wrote a post about my experience as a victim of credit card fraud - you can check it out here if you're interested!

Storing Foreign Currencies

The good thing about multi-currency cards having an account that requires funding is that you're able to store different currencies within your account.

This means that if the exchange rate for a particular currency is favourable, you can convert your currency to lock in the exchange rate.

You can then use the converted currency in future as and when you please and will not be reliant on the future exchange rate of the currency.

With credit cards, this isn't possible, which means that every time you make an FCY transaction, you'll be subjected to the floating FX rate of the currency.

Which Is Better?

Now, we arrive at the final question - are multi-currency cards or credit cards better for overseas transactions?

Students - Multi-currency Cards

Let's get it out of the way for all the students reading this post.

Since you can't get credit cards as a student, you don't have much of a choice - it's between multi-currency cards and debit cards.

And since debit cards don't typically have good rewards, I don't think it's ever a good idea to pay overseas transaction fees by using debit cards.

As for which multi-currency card to use, the amaze card linked with the Standard Chartered debit card (from the JumpStart account) is a great option.

You'll earn 2% cashback on FCY transactions and 1% cashback on DCC and overseas SGD transactions.

Otherwise, YouTrip and Revolut are fine options as well.

Adults - Credit Cards

The best choice for adults would be the amaze card linked to a MasterCard credit card of your choice.

This is because you'll earn both your credit card rewards and amaze rewards, and get to avoid all the fees associated with overseas transactions.

But if you have a suitable MasterCard credit card to use with amaze, I'll say that credit cards are potentially better than multi-currency cards.

This is because some credit cards are capable of earning a high rewards % such that the rewards earned for overseas transaction outweigh the fees that are charged.

For example, let's say I want to buy tickets for Disneyland in Tokyo, which are charged in yen.

Let's imagine that this costs ~100 SGD after conversion based on the mid-market rate.

If I were to pay with a multi-currency card, this would cost me 100 SGD if I use a provider that offers the mid-market exchange rate like YouTrip or Revolut and I earn no rewards.

If I were to pay with my HSBC Revolution card, the FCY transaction fee is 2.8%, which amounts to 2.80 SGD.

However, since this is an online payment, it is eligible to earn 4 mpd, which means I'll earn ~400 miles.

Assuming that 1 mile is worth 1.7 cents, this is equal to 6.80 SGD worth of rewards, which is much greater than the cost of the fees.

Remember that FCY transactions are converted by the network provider, Visa in this case, which also converts currencies based on the mid-market rate.

In other words, it would cost me only 96 SGD if I paid with my HSBC Revolution card.

But it's worth noting that not all credit cards are equal - some cards simply don't offer a high enough rewards rate to cover the overseas transaction fees.

For example, the AMEX True Cashback card only awards 1.5% cashback on all expenses.

Meanwhile, the overseas transaction fees for AMEX stand at 2.95% - it's clear that you're paying extra whenever you make an overseas transaction.

So before you jump to the conclusion that using a credit card will always be better, you must be sure to take note of the specific card you're using and the expected rewards % and fee %.

My Pick - amaze / Credit Cards

Personally, I use a mix of my HSBC Revolution card and my amaze card paired with my Citi Rewards card.

This is because each of these cards has a monthly cap on bonus miles earned up to 1000 SGD/month of spending, and also because of rewards exclusion categories for the Citi Rewards card.

Between both of these cards, I'm able to maximise my miles earning potential while minimising my fees.

Closing Thoughts

When it comes down to it, I think it depends on what you value more.

The biggest value that multi-currency cards offer is saving cash upfront because you avoid paying additional fees for each transaction you make.

You also have the flexibility to lock-in a favourable exchange rate that you intend to use in the future which can result in savings if the exchange rate goes up after that.

But this also runs the risk of losing you money if the exchange rate ends up getting worse.

Multi-currency cards also make you more vulnerable to card fraud.

Meanwhile, credit cards are safer and require you to pay more cash upfront for each transaction, but you can potentially earn more in card rewards than the fees you pay.

The calculation will differ depending on the issuing bank of your card and the exact card you use, so always be sure to do your own calculations first.

Do you use a multi-currency card or credit card for your overseas transactions? Let me know in the comments below!