Do Foreign Exchange fees outweigh overseas miles earning rates on your credit card?

One major ‘pull’ for many credit cards issued in Singapore is the enhanced miles earning rate for transactions made overseas (or simply transacted in foreign currency, which is the criteria for most cards). Many cards offer attractive headline rates in this category, typically between 2 and 3 miles per S$1 spent.

The question is, since you’ll pay a higher foreign exchange fee with some cards compared to others, does the earning rate you’re receiving for your card make the most sense?

What fees are applied when I make a purchase in foreign currency?

There are three elements to the calculation when you use your credit card to make a transaction in foreign currency:

• the foreign exchange “spread”, which comes about because your overseas transaction is first converted into US$ before being converted again to SG$ (unless the transaction was in US$ to start with). Typically 0.8%
• the foreign exchange fee levied by your card issuer. Typically 1.5-2.5%
• the foreign exchange fee applied by the card network (Visa, MasterCard or Amex). Typically 1.0%

Card issuers in Singapore hide the details of the last two categories in their terms and conditions documents, and for some cards those categories are combined, making it difficult to directly judge one card against another. We’ve therefore compiled a table of the major credit card issuing banks in Singapore, showing the total foreign exchange fee levied by each one for overseas transactions.

What’s the best rate you can get?

Before we look at the tables, let’s establish the best rate you can achieve for your overseas spending, as that also helps establish the benchmark against which we can judge the additional fees you’ll pay when using a credit card.

There’s actually no escaping at least some currency conversion cost whichever method you pick. Even your favourite money changer in Singapore, who consistently offers the most competitive rates, will still charge a foreign exchange spread. You’ll never achieve the ‘interbank rate’ as a consumer.

We checked the rates offered on 12th February 2018 for four major currencies at XE (the interbank rate you can’t get), a local Singapore money changer, foreign currency delivery service Thin Margin, and the UOB outlet in the transit area at Changi T1.

Singapore Dollars (S$) needed to buy one unit of foreign currency

First thing to note is the extra you’re paying if you choose the worst-case option – changing cash at the airport. This ranged from 1.0% to 1.8% more on the day we checked, compared with the rate you’d get at a money changer downtown.

You can also see that a good money changer in Singapore is charging an average 0.58% ‘spread’ over the interbank (XE) rate, across these four currencies.

In some cases the card operator (Visa, MasterCard or Amex) will charge a similar spread over the XE rate, but in some cases it can be as high as 0.88%. For the worst-case scenario, we’ve considered in our calculations later that you’ll suffer an extra 0.3% ‘spread’ if you use your credit card for an overseas transaction vs. money changer rates, but it will usually be less than this.

Another interesting point is that the Thin Margin rates are actually quite competitive, only slightly higher than at a money changer but you get the convenience of your currency delivered to your home or office without even having to jump on the MRT.

On the downside, a couple of days notice is needed for the delivery slot, the minimum purchase is S$800, and there is a S$3 delivery charge for conversions less than S$2,000.

Are there any 0% forex credit cards?

It’s interesting to note that unlike cards such as the 28 Degrees Platinum MasterCard in Australia and the Halifax Clarity card in the UK, ‘no forex fee’ credit cards have not yet appeared in Singapore (to our knowledge), and so if you really want to achieve the best rate for your overseas purchases – the old fashioned way is the best. That means using a money changer and converting your SGD into cash before your trip.

That’s a shame because a 0% forex fee credit card, which admittedly forgoes any additional perks like miles, does remove a few of the negative aspects of using cash like the security concern (carrying large amounts of money around foreign cities), and the risk of having unwanted leftover currency at the end of your trip (which you might then be inclined to spend – just for the sake of it).

The closest you can get to this in Singapore is the CIMB Visa Infinite or CIMB Platinum MasterCard, not miles-earning options but only a 1% forex fee is applied.

DBS also offer their Multi-Currency Account which allows forex-free transactions overseas in 12 popular currencies using your DBS Visa Debit card, but you still need to fund your specific currency wallet buy buying online in advance, and have a good idea how much you will need before your trip as a transaction will be declined if you have insufficient funds in that currency.

It does however offer competitive rates, close to those you’ll get at a money changer, without the hassle of visiting one and carrying around large amounts of cash in the process.

Citi offer a similar account, which works for 9 foreign currencies.

Forex rates by card issuer

Total foreign exchange fee levy on overseas credit card transactions
(February 2018)

^[1] Except Visa Infinite Signature and Platinum MasterCard
^[2] Visa Infinite Signature and Platinum MasterCard only
^[3] Except Visa Infinite and World MasterCard
^[4] Visa Infinite and World MasterCard only
^[5] Except PRVI Miles
^[6] PRVI Miles cards only

Edit 30th April 2018: Thanks to KP in the comments section for correcting my mistake relating to the forex fees on the CIMB cards. It’s the Visa Signature and Platinum MasterCard which have the lower 1.0% fee, the Visa Infinite is 3.0%.

How do the rates relate to the extra points earned?

If you are using your credit card for overseas spending to take advantage of the higher miles earning rate for these transactions, you are effectively ‘buying’ those miles because the foreign exchange fee levied by your card issuer is over and above what it would have cost if you changed your money before you left at a money changer in Singapore, and then simply paid cash for your overseas transactions.

This assumes of course that the exchange rate has not altered since you left Singapore, which can of course work in your favour or against you if you changed cash in advance of your trip, depending on the direction of the currency shift.

To determine the cost you are paying for each mile by using your card overseas, we used the following method, based on a S$100 purchase (i.e. value assuming money changer cash exchange rate):

UOB PRVI Miles

• 3.25% foreign exchange fee.
• 0.3% card operator ‘spread’ over and above Money changer ‘spread’.
• Total payable $103.55.
• Points / mile 2.4 = 248 miles.
• Cost per mile earned: 1.43 cents (¢)

To clarify, this transaction would have cost you S$100 cash, given the exchange rate you would have paid at the money changer before you left Singapore, and the rate has not fluctuated. You are therefore paying an extra $3.55, but earning 248 miles in return.

Applying the same calculation to other popular miles earning cards in Singapore results in the following table, showing cost per mile rates (ordered best to worst) if you use these cards for an overseas transaction.

Cost per mile on overseas credit card transactions by card
(Best to worst, February 2018)

Cost per mile also accounts for an additional 0.3% ‘spread’ over money changer currency rates. Miles refer to Singapore Airlines KrisFlyer miles, which we value at about 2 cents each.

Standard Chartered Visa Infinite (SCVI) comes out on top (see our review here), despite having the highest forex fee of the cards we looked at, and that’s down to its very generous 3 miles per S$1 spent overseas earning rate. It equates to paying 1.22 cents per mile earned overseas, compared with using cash at the money changer rate.

Remember for SCVI the 3 miles per S$1 overseas earn rate only applies if you spend at least S$2,000 on the card (either locally or overseas) in each statement cycle, and we have assumed that here.

The next highest overseas earning rate card, UOB PRVI Miles, doesn’t actually fare that well. With an rate of 2.4 miles per S$1 spent, it has a high forex fee of 3.25% (only SCVI is higher, but gives 25% more miles in return). For this card you’re paying 1.43 cents per mile.

At the bottom of the table is the DBS Altitude AMEX card, which charges 3.0% forex fee but only awards 2 miles per S$1 spent overseas, meaning you’re ‘buying’ the miles for 1.60 cents each. Other popular miles earning cards near the bottom of the pack include the Citi PremierMiles, Citi Prestige and DBS Altitude Visa.

What about 4X miles earning credit cards?

In addition to the popular cards we listed above, a few Singapore credit cards have bonus spending categories which award 4 miles per S$1 spent, and many of these also apply for selected overseas transactions. This clearly brings the cost per mile rate down even further, if you don’t mind the hassle of using specific cards for certain transactions.

Here’s a summary of some of the 4X miles earning cards and their categories which work overseas:

• OCBC Titanium Rewards – 4 miles per S$1 on overseas shopping and all overseas mobile payments
• Citi Rewards – 4 miles per S$1 on overseas shopping
• UOB Visa Signature – 4 miles per S$1 on all overseas spend of at least S$1,000 in a statement period, capped at S$2,000

All of these examples are Visa or MasterCard options, and each of these banks apply a 2.8% forex fee, so the cost per mile on overseas transactions is the same for all of them, for spending within the bonus 4 miles per S$1 spending category.

Cost per mile on selected 4X bonus credit card transactions

That makes using these cards overseas within their respective bonus spending categories a no-brainer, as you’re acquiring miles at just 0.75 cents each which is a steal (even the poorest redemption options, like Scoot vouchers, give you 25% better value than this).

Just be careful to make sure your transaction will definitely fall into one of the valid 4X earning categories, as with these cards the standard earning rate is often very poor. For the OCBC Titanium Rewards card, for example, it drops to just 0.4 miles per S$1 – meaning you’ll be paying a whopping 7.5 cents per mile if you get it wrong!

Cash has its drawbacks

At least some cash in your wallet is a good idea whenever you travel, as credit cards are accepted less widely in many countries for everyday transactions. There are a few drawbacks to changing cash for your entire trip though.

• Security – even when you travel to ‘safe’ countries, carrying around large volumes of cash is risky, both in terms of theft or possible loss.
• Unwanted leftovers – You’ll probably end up changing more cash than you need for a foreign trip, to ensure you don’t run out. That can lead to unwanted leftover cash at the end, which you’d then have to convert back into SGD, or possibly worse you may be tempted to spend it for the sake of it.
• Cash may be unsuitable for large bills, like hotel stays which are not pre-paid. Again, this raises the security concern.

Dynamic Currency Conversion (DCC)

We talk a lot about DCC in our credit card reviews, because it’s important to be aware of it especially with is topic – overseas miles earning rates.

It’s very common when settling your overseas hotel bill, for example, to be offered to pay in SGD instead of local currency. This is a terrible idea, because:

• You’ll suffer financially, even after the credit card foreign exchange fee is accounted for. If you remember the SGD amount you were offered to pay, then pay in local currency instead, once the transaction appears on your credit card statement you’ll generally find they were scamming you, you’d have paid at least 2% more using DCC.
• You will earn credit card miles at the local spend rate if you accept DCC, because the transaction will take place in SGD, not the local currency.

In other words, you’ll pay more, and lose miles. Always insist on paying in the local currency of the country you are in.

Conclusion

The title of this article is a simple question, do the forex fees charged by your credit card issuer when spending overseas outweigh the miles earned. Well we think a KrisFlyer mile is worth about 2 cents, and so the answer for each card we analysed above is no – they don’t.

You are still better using your card overseas and taking the forex fee hit, because you are always acquiring miles at a cost below value, in our opinion.

However we’ve covered a few other things in this article, so here’s a summary of our main conclusions when it comes to overseas spending for the miles addict.

• Changing cash before your trip will cost you less, but comes with many drawbacks.
• Whichever of the above miles earning credit cards you use overseas, the additional cost incurred is always outweighed by the number of miles earned (assuming you value KrisFlyer miles at 2 cents each).
• If you must use cash overseas, don’t change money at the airport. Take the time to find a competitive rate at a local money changer, or if it’s too much hassle consider Thin Margin, which will still save you plenty over the airport rates.
• When using your credit card overseas, always insist on paying in the local currency whenever you are offered the choice to settle in SGD. Otherwise you’ll pay more, and lose miles. DCC is a scam, and even the banks are starting to twig.