Don't get shortchanged

A FIN24 user writes: "My son is going to Hong Kong for nine days. What is the best way to take money over - credit and/or debit card, travellers' cheques or cash?"

The experts think a mix of cash (which will enable you to pay for taxi fares, tips, food etc) and other payment methods (which will provide some security against theft) may be best.

Credit and debit cards

A credit card provides you with a line of credit, which essentially allows you to borrow money for payment to a merchant or as a cash advance.

A debit card, on the other hand, provides an alternative payment method to cash when making purchases.

Functionally, it can be called an electronic cheque, as the funds are withdrawn directly from either your current or savings bank account.

Pros:

• Credit and debit cards can be secured, unlike cash.

• They are convenient to carry.

• A debit card can assist you to stay within budget.

• A consumer who is not creditworthy and may find it difficult or impossible to obtain a credit card can obtain a debit card more easily.

• Like credit cards, debit cards are accepted by merchants with less identification and scrutiny.

• Exchange rates may be more favourable than buying forex in cash.

• Credit cards are great in an emergency – for example, if you have to pay for medical treatment.

Cons:

• Credit and debit cards attract significant charges when withdrawals are made at ATMs abroad.

• Many banks are now charging over-limit fees or non-sufficient funds fees based on pre-authorisations, and even attempted but refused transactions by the merchant - some of which may only be discovered later by the account holder.

• Fraud, particularly card-skimming. Debit cardholders may have much less protection against fraud than credit cardholders. While the holder of a credit card is legally responsible for only a minimal amount in the case of a fraudulent transaction - which is often waived by the bank - debit cardholders may be liable for the entire value of fraudulent debit transactions.

The consumer also has a shorter time (usually 48 hours) to report such fraud to the bank to be eligible for a waiver with a debit card, whereas with a credit card this may be up to 60 days.

• Cash and credit machines are not available everywhere, and you may struggle in smaller towns.

Costs:

This will depend on your banking package. Take a look at how the different credit cards and currents accounts stack up here.

Travellers' cheques

This is basically a cheque book; you pay a certain amount to the issuer and receive an equivalent amount in the form of cheques in another currency.

For decades, travellers' cheques have been the preferred form of carrying money around the world and you can buy them from virtually from any bank or building society. However, they have fallen out of favour.

Pros:

• The cheques are usually quite cheap to buy, with commission as low as 1% of the total purchased amount.

• Travellers' cheques usually have no expiry date.

• The required counter signature gives the cheques a degree of security. American Express recommends that you sign their cheques at the top left corner the minute you collect them at the issuing bank. When cashing cheques, you will be required to counter sign in front of a bank official with proof of ID.

• If stolen or lost, your cheques will be replaced within a couple of days if you report the numbers on the notes to the issuer. 

Cons:

• While travellers' cheques may be relatively cheap to buy, when you cash them the receiving party may require a further commission. This usually makes them more expensive than other payment methods.

• Also, because they are only offered in a few currencies, travellers' cheques are becoming less favoured as an increasing number of foreign merchants and retailers do not accept them any more, preferring cash or electronic transactions instead.

• You don't earn interest on money sitting in your account.

• You may have to pay a surcharge fee for converting unused travellers' cheques back into rands.

Costs:

With R10 000, you will get $1 400 worth of travellers' cheques. This includes a commission of 1.75% and an administration fee.

Upon return, your travellers' cheques may also attract a surcharge of between 10% and 20%, depending on the spread between the currency provider's buy and sell rate.

The difference between this is how currency providers principally make their money.

Cash

As a South African resident, you are only allowed to take out hard cash to the value of R10 000.

Pros:

-  You immediately have money at hand to pay for taxis and small purchases.

Cons:

- Safekeeping; there is a risk of being robbed or targeted because you have cash.

- If there are unforeseen costs, you may not have enough cash. Or if you still have money left, you may be forced to spend it because converting small amounts back into rands can be expensive.

Currency cards/cash passport

These are pre-loaded, PIN-protected debit cards that give you access to your funds in the local currency, wherever you are in the world.

The traveller uploads the card with either US dollars, euros or British pounds. If for example you buy dollars, at the country of destination the money is withdrawn in the local currency from ATMs.

However, the balance on the card remains in dollars.

Many financial institutions - including First National Bank and Bidvest - offer these cards, which are usually issued by big credit card groups like Visa and MasterCard.

Referring to the above query, Craig MacFarlane, head of retail at Bidvest, suggests uploading US dollars on your card if you are travelling to Hong Kong.

"The card will also work online at any Visa merchant to buy goods at shops, or food at restaurants. If you have roaming on your cellphone, then you will also get an SMS that gives you the transaction confirmation within a minute overseas, as well as the remaining balance on the card."

Pros:

• If lost, these cards can be cancelled and replaced.

• Their exchange rates are fixed at the time the currency is loaded to combat exchange rate fluctuations, and the cost of currency loaded is determined upfront. 

• You can transact at stores, restaurants and hotels – for free.

• The cards are often valid for a longer period and may be used when travelling again.

Cons:

Chantal Robertson, head of advisory services at FNB forex, says one downside to using the currency cards is that they cannot be loaded with the currency of the country to be visited, adding to conversion charges.

Costs:

Currency card costs vary. You will typically have to pay a card fee of about R110, plus a percentage (usually about 1.85%) of the rand amount.

If you withdraw money from an ATM, you will pay between R13 to R20 per transaction. Swiping at a merchant is free of charge.

If you don't use the card, you may pay a monthly inactivity fee of around R15 a month.

Exchange controls

Robertson says globetrotters must note that the travel allowance which falls under discretionary allowances currently has an annual limit of R1m. This applies to SA residents over 18.

The foreign investment allowance for individuals now has an annual limit of R4m.

"The travel allowance is accorded subject to proof of foreign travel, and any unused portion of the allowance has to be converted within 30 days of returning to SA," she says.

 - Fin24