You will be able to choose the cheapest way to pay abroad and avoid the most common hidden charge.
At the end of a dinner in Kyoto, the waiter hands Siti the card terminal. The screen asks a question: pay in JPY or in SGD? Paying in Singapore dollars feels safer. She would know exactly what she was paying, with no surprises on her statement. Most people tap SGD. On most occasions, it is the more expensive choice.
That screen is one of several places where money leaks out of an overseas trip, and most of the leaks are fees rather than exchange rates. This lesson shows where they are and how to compare the ways you can pay.
When you pay in a foreign currency with a Singapore card, two things happen. First, the card network, such as Visa or Mastercard, converts the amount into Singapore dollars at its own exchange rate for that day. Second, your bank adds a foreign transaction fee, a percentage of the converted amount, which it sets itself and lists in the card's terms. Some cards and accounts charge no such fee. Many charge a few percent. Check the current figure in your own card's fee schedule.
Here is an example with made-up figures. Siti spends 100,000 yen on a card. The network's rate is S$0.900 per 100 yen, so the purchase converts to S$900. Her bank's fee in this example is 3%, which adds S$27. She pays S$927.
The fee is easy to miss because it is bundled into the Singapore dollar amount on your statement, or shown as a separate small line days later.
The question on the Kyoto terminal is dynamic currency conversion, often shortened to DCC. If you choose SGD, the merchant's payment provider converts the bill into Singapore dollars at a rate it sets, and that rate usually includes a markup well above the network's rate. You see a Singapore dollar figure on the screen, but you are paying for that certainty with a worse rate.
In the same example, the DCC rate offered is S$0.95 per 100 yen. The 100,000 yen bill becomes S$950. And because the transaction was still processed overseas, some banks charge their foreign transaction fee on top, even though it was billed in Singapore dollars. At 1% that would add another S$9.50.
The rule is simple: when a terminal, an ATM or a website abroad offers to charge you in Singapore dollars, decline and pay in the local currency. If a merchant has already charged you in Singapore dollars without asking, you can ask them to reverse it and charge in local currency instead.
For a trip, you will usually have three or four options.
Money changers sell foreign cash. Rates vary between changers and by how much you change, and the better ones in Singapore are often close to the market rate. Cash has its own costs: you may change too much and lose again when you change it back, and it can be lost or stolen.
Multi-currency accounts and cards let you convert Singapore dollars into foreign currency at a rate the provider shows you, and then spend in that currency abroad. Some charge no fee for spending, but their rate includes a margin, and some have limits or charges for withdrawals.
Ordinary credit and debit cards use the network rate plus your bank's fee, as above.
The only fair way to compare them is the total Singapore dollar cost of the same amount of foreign currency. In Siti's example, with made-up rates for each: the card cost S$927 for 100,000 yen; DCC cost S$950 or more; a money changer quoting S$0.905 per 100 yen would cost S$905; and a multi-currency account converting at S$0.902 with no spending fee would cost S$902. The gap between the best and worst is about S$50 on one week's spending, before any card rewards, which some people weigh in too.
Many travellers watch the exchange rate for weeks, waiting for a good moment to change money. It feels productive. It usually saves very little.
In the example above, the bank's 3% fee cost Siti S$27 for certain. For timing to save the same amount, the yen would have to fall about 3% against the Singapore dollar in the weeks before her trip, and it is just as likely to rise. As lesson 6.1, Why exchange rates move, explained, short-term moves are hard to predict. A 2% move in either direction would shift the cost by S$18.
Cutting a fee is a sure saving. Timing the rate is a guess. Get the fees right first, and then, if you like, change your money in two or three parts before the trip rather than all at once, so you are not betting everything on one day's rate.
Before your next trip, find out what each method you have access to would actually charge, using the same amount of the local currency for each.
For your next trip, compare the Singapore dollar cost of 1,000 units of the local currency through three methods you have access to.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).