different dollar bills | Really Foreign Currency Conversion Costs Make Swollen Credit Card Billing?

Really Foreign Currency Conversion Costs Make Swollen Credit Card Billing?



Tags: halomoney, credit card tips, credit card transactions, foreign transactions, foreign currency transactions
Do not get desperate to see a bloated charge due to the cost of converting foreign currency

Transactions with foreign currency for personal purposes are usually made to purchase goods via international e-Commerce sites such as Amazon or eBay. Learn about the cost of converting foreign currency here.

In addition to e-commerce sites, purchase of transportation tickets from foreign airlines, travel packages from overseas sites, or direct purchase of goods in other countries may also be categorized as transactions in foreign currency.

When making a purchase transaction of a good or service with a merchant abroad, one option to pay off is by using a Visa or MasterCard Visa credit card. When making transactions in foreign currencies, are you aware that there are fees charged on your credit card usage?

Managing Director of the most popular financial product comparison site in Indonesia HaloMoney.co.id, Jay Broekman, states that foreign currency conversion fees are one of the components of credit card fees that credit card users often miss, even if they use them multiple times for transactions in foreign currency.

Jay-Broekman-2

"Normally, I'll make sure the exchange rates and fees charged for foreign currency conversions on transactions using my credit card. Despite the difference of a few percent, I came to know exactly how much I would spend in Rupiah. It helps when I budget the needs of transactions in foreign currency, "said Jay.

The cost of converting foreign currency is actually composed of two parts, namely fees charged by Credit Card Network (such as Visa and MasterCard) as well as fees charged by credit card issuing banks (such as CIMB Niaga, HSBC, Citi, and Standard Chartered). Generally, the fees charged by Visa and MasterCard range from 1% to 2%, while banks will charge 1.5% to 2.5%.

Calculate the cost of converting foreign currency to avoid any bloated bills
The conversion fee is charged directly to the rupiah exchange rate on your credit card statement. As a result, these foreign currency conversion fees are often not realized by credit card users. This is what can make your credit card bills swell without your realizing the cause.

Here is an example of a simulated transaction in foreign currency that is billed to you when shopping on an e-Commerce site. The value of expenditure without conversion cost of foreign currency is as follows:

Normal conversion table
The exchange rate from US $ to Rupiah in the table is assumed to be Rp 13,000 when the transaction date is processed by Visa or MasterCard. Suppose you are using a Visa credit card from bank X. Assume the Visa conversion fee is 1% and the bank charges an additional 1.5% fee, so the total cost of conversion of foreign currency is 2.5%.

On your credit card bill later, the rate shown is not Rp 13.000, but Rp 13.325 (earned from 102.5% * Rp 13.000). As a result, the amount you are billed for is as follows:

Table Cost of conversion of foreign currency
As you can see from both tables above, the difference in the value of expenditure in rupiah represents the so-called cost of conversion of foreign currency. In the example above, the conversion fee charged to you is Rp 325 thousand (earned from Rp 13,325,000 - Rp 13,000,000).

If this foreign currency conversion fee is accumulated for each transaction in foreign currency that you often make, of course the amount will be great. In order not to make your cash flow go awry, you should try asking your bank about the foreign currency conversion fees that will apply to you.

Shop abroad carefully with bloated bills

In addition to transactions in foreign currency, there are times when you buy goods or services from abroad but the product is offered in Rupiah currency. At a glance you think that this transaction is more convenient because using Rupiah, but unfortunately this is a fatal mistake of perception.

The payment option in your own currency when shopping abroad is called Dynamic Currency Conversion, and it is a facility used by your shopping merchant, not by Credit Card Network.

As a result, the merchant will use a very unfavorable exchange rate for you as a buyer. In addition, you will still be charged Dynamic Currency Conversion facility facility with an amount of about 0.8% to 1%.

For example, assume merchants use the exchange rate option Rp 16.000 and 1% facility fee. The amount of Rupiah to be offered by the merchant and the total amount charged on your credit card bill is as follows:

Dynamic Currency Conversion Simulation Table
*) Merchants most likely just mention the value in Rupiah so you do not know the value in US $ currency.

Note that you are spending a lot more money because merchants use the facility. Your total bill amounts to USD 16,160,000, whereas if you bought normal in US $ currency in another merchant, the value you were billed for was Rp 13.325.000.

The difference is almost Rp 3 million is certainly making your expenses for transactions abroad to be wasteful.

Dynamic Currency Conversion can make you as a customer to be wasteful

If you are shopping abroad, avoid buying in a place that offers sales in rupiah unless you know exactly what the value of the item is worth in rupiah. If you shop on a site that offers a price in rupiah, you can try checking in the Terms of Use section whether payment is processed locally also in Indonesia or using third party services from overseas.

Use credit cards for overseas payment transactions wisely and do not hesitate to seek information from banks to prevent wastage that may result from foreign currency conversion costs.