What exactly are Forex prepaid cards?
Those cards that are pre loaded with funds and are issued by banks and Forex dealers are called Forex prepaid cards. This plastic cash, unlike any other general credit cards, provide you with the facility of purchasing your required goods or services from any part of the world no matter what the currency is. You can avail these cards in the denominations of US Dollar, GB Pound, Euro etc.
How can this help you?
In situations where the rupee hits an all time low, these cards can provide you a better advantage over liquid cash. They always do provide a better hedge against the exchange rate fluctuations. Generally, when the value of rupee starts to fall, most loan borrowers especially the education loan borrowers feel the pinch due to high principal and interest rate repayments. Also, the second most important reason is the security of your money. When you have planned out your summer vacation with your family in abroad, apart from the baggage check, utilities that might be required etc, you need to decide upon the mode in which you will prefer to carry your cash in terms of the currency where you will be travelling to. The amount, obviously, will depend on factors like the duration of your stay, mode of transport, the amount of expense you might incur while shopping etc. Although carrying cash is much more hassle free and comparatively easier, it does involve a lot of risk when it comes to its protection from theft. Therefore it is always better to opt for a Forex prepaid card or travelers cheques to avert yourself from any such inconvenience that can hamper your happiness during your vacation.
How does it protect you against the falling rupee?
The mechanism is quite simple to understand. If you swipe your general credit card, you are charged at the exchange rate as is the value on the date of purchase, but if you utilize your prepaid card, the interest rate will be charged as on the date you loaded your card. Thereby giving you the benefit of a low exchange rate on the currency you are buying in. To summarize, if the value of the rupee continues to fall as it is doing now, you will be benefitted from this decline as you will be paying a comparatively much lower interest rate payments, than what you are likely to pay if it was a general credit card. It is important to remember that, utilizing Forex prepaid cards attracts a charge of up to 3.5% as cross currency charge.
Apart from the prepaid cards, travelers cheque is also one of the important and popular modes of foreign exchange. But the reason as to why prepaid cards beats travelers cheque in their use is for the main fact that travelers cheque cannot be encashed once the banking hours have completed. Also, the acceptability of the travelers cheque is also an issue since its surety of it being acceptable is not yet specified. Also, a certain amount as fee is levied on the encashment of travelers cheque. In comparison to the pre paid card’s usage, banks charge Rs110-150 as a one- time issuing charge and if you use the card for withdrawal purposes, a charge of Rs 1.25-2 units of the foreign currency is levied. If in situations where there is a little balance left on your card, just by filling a refund form, you can get it encashed once you head back to India.
But like all credit, be wise in spending credit money. You do not want to end up in a debt by borrowing a personal loan to repay a credit card loan. This can completely dwindle your financial stability and cause a lot of financial strain over the years. Make sure to have made wise choices by restricting your use and planning out your expenses.