[The following is a sponsored post by DBS. All opinions are those of The Milelion]
Deciding what method of payment to use when overseas is always a tricky question for me.
I could use my credit cards to earn rewards points, but then I’d be hit with overseas transaction fees. I could change money before I fly, but then I’d run the risk of carrying around a large stack of cash. I could withdraw money from ATMs as needed, but I’d incur ATM fees plus be vulnerable to card skimming.
That’s why I find the DBS Multi-Currency Account (MCA) to be such an interesting proposition.
The MCA was launched earlier this year, offering consumers the possibility of zero foreign currency transaction fees while enjoying the convenience of buying forex on-the-go. It currently supports 12 different foreign currencies: Australia Dollar, Canadian Dollar, Chinese Yuan (although you can’t use the debit card feature to pay in this currency) Euro, Hong Kong Dollar, Japanese Yen, New Zealand Dollar, Norwegian Kroner, Sterling Pound, Swedish Kroner, Thai Baht and US Dollar.
But how does the MCA compare with some of your traditional options for paying overseas?
This will be the go-to solution for most people, and that’s just fine. If you get a good moneychanger, you’re looking at a ~1% spread at most. Of course, you first need to physically visit the moneychanger. For people who work around the Raffles Place area, that’s not really a problem. But for those who work in secluded industrial areas or ulu office complexes it’s not always so simple. And if you forget to change money beforehand, well, good luck with the airport’s exchange rates.
On top of all this there’s obviously the security risk of carrying around a big amount of cash. Then there’s also the question about how much to change- change too little and you might have to incur overseas ATM fees when you run out of cash (or worse, get bilked by overseas moneychangers). Change too much and you either have to make a return trip to the moneychanger on the way back (with the commensurate forex risk) or tie up some of your money till your next trip.
So while it’s definitely a good idea to change at least some cash before you head overseas, this shouldn’t be your only source of forex.
Despite the fees involved, I’d happily use my card overseas to earn points…when I’m not paying. If you’re travelling for business and have a reimbursable expense account, by all means go for it.
But when I’m traveling on leisure I tend to be a lot more careful about when I use my credit cards, only using them when 10X earning opportunities arise (eg for overseas dining or shopping). Otherwise, I still prefer to transact in cash so as to avoid fees.
I’ve explained it before in this article, but to reiterate: when you pay with your credit card overseas you’re hit by three different kinds of fees- the currency spread (a double whammy if you’re charging in any currency other than USD, because transactions are converted into USD before they’re converted into SGD), the platform fee charged by Visa/Mastercard/AMEX and the bank’s foreign currency transaction fee.
|UOB||2.8%||3.25%||PRVI MC/Visa- 3.25%|
|Maybank||2.5%||N/A||2.75% for Visa Diamante, Infinite and World MC|
|CIMB||2.4%||N/A||1% for CIMB Plat MC and Visa Signature|
The other issue that annoys me about overseas card transactions is refunds. Suppose I buy something for US$100 on the first day of my trip and decide to return it on the last day. I’ll get refunded US$100, but when the refund works its way back to my card I may end up with less money still. Remember that your card uses a different buying and selling rate, so even if your transaction is refunded immediately you can still get hit. This was the case in the UK where an innkeeper mistakenly swiped my card for GBP54 instead of 45. She refunded the wrong amount literally the next minute, but when I saw my statement the refund amount was less than the original amount debited. I eventually got it sorted out with the bank but still…
Credit cards have a role to play in your overseas spending too, but only in certain circumstances (i.e 10X). Where personal travel is concerned, they shouldn’t be your primary means of spending.
If you don’t want to carry around large amounts of cash for security reasons, you could withdraw money as needed at an ATM. But the flat fee that banks charge for ATM withdrawals means that it’s financially inefficient to keep withdrawing money (not to mention that you need to be careful about the possibility of card skimming). Moreover, remember that you might end up paying both a bank fee and an ATM fee- I’ve seen this in a lot of places in the States where convenience stores have 3rd party ATMs unaffiliated with any particular bank.
I view ATMs as a source of emergency funds when I travel, nothing more.
DBS Multi-Currency Account
This brings us to the MCA. How it works is simple: you open an account and tag your DBS Visa debit card to it. You then transfer your SGD into any of the 12 currencies supported. When you shop overseas, pay with your DBS debit card and the corresponding foreign currency (except CNY, which isn’t supported) will be debited from your account, with no additional foreign transaction fees.
In my mind there are three main benefits of this arrangement:
- First, the MCA eliminates the need to carry around large quantities of cash
- Second, there are no foreign transaction fees. When you buy a US$100 item, US$100 is debited from your USD account. When you return a US$100 item, US$100 is credited to your USD account
- Third, you have the convenience of buying foreign currency online, and this makes it easy to apply a DCA approach towards your overseas trip. Suppose you want to change S$1,000 worth of USD. You could choose to transfer S$200 every month for 5 months. When the SGD appreciates, you buy more foreign currency. When it depreciates, you buy less. You thus make yourself less vulnerable to sudden fluctuations. You could of course do this with a physical moneychanger, but this saves you the legwork
One important point- there are no foreign transaction fees when you use your MCA, but you still need to be careful not to fall afoul of DCC. If the merchant DCCs your transaction, you’ll be hit by conversion fees as the transaction goes through in SGD.
The chief drawback for miles chasers is that you won’t earn any rewards points with the debit card. That said, there is an ongoing promotion offering S$50 cashback when you spend the equivalent of S$1,500 on foreign currency transactions with your DBS debit card (till 31 Dec 2017, limit 10,000 customers, T&C here).
Comparing the rates
The key question is whether the MCA’s rates are competitive. I looked at the 12 currencies the MCA offers and was pleasantly surprised. Here’s how the rate for the MCA measures up versus the XE rate. I threw in the rate at a good moneychanger at Arcade for comparison.
You can see that the spread between the MCA and a moneychanger is marginal. In fact, there are some currencies (NZD, NOK, SEK) where the MCA offers better rates than a moneychanger. Otherwise, the difference is largely <0.5%. You could view that as the convenience fee for exchanging money on the go.
I think the DBS MCA can play a useful role in a foreign spending strategy. My approach would probably be to change a small amount of cash at a moneychanger for places that don’t take cards, bring a few credit cards that earn 10X bonuses overseas, and have my ATM card handy for emergency cash. However, the bulk of my general spending would go through my MCA-linked debit card.
If this sounds like the option for you, have a read of this post that walks you through how to use the DBS MCA.