When planning an international trip, many people wonder whether they should save money in Indian rupees or start buying US dollars in advance. It usually depends on two things: how soon you plan to travel and how the rupee is performing against the dollar.
The US dollar is one of the world's strongest and most widely accepted currencies. However, its value against the Indian rupee changes every day due to market movements. For example, if the current exchange rate is Rs 95.21 for $1, you would need Rs 95,210 to buy $1,000.
Now, suppose you decide to buy $1,000 today because you are worried that the dollar may become more expensive in the future. If, after a few months, the exchange rate falls to Rs 92 per dollar, the same $1,000 would cost only Rs 92,000. This would have given you a loss of Rs 3,210.
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On the other hand, if the dollar rises to Rs 100 per dollar, buying $1,000 would cost Rs 1,00,000. So, purchasing dollars earlier at Rs 95.21 would have saved you Rs 4,790.
When it comes to deciding, which is better, saving in rupees or dollars? There is no one-size-fits-all answer. The best option depends on your travel plans.
If you are travelling soon, within three to six months, it is usually easier to keep saving in rupees and convert the money shortly before your trip. Because exchange rates can move in either direction. If you buy dollars too early and the rupee strengthens later, you could end up paying more than necessary.
Also, once you convert your money into US dollars, that money usually stops earning any return. If the same amount remained in a savings account, fixed deposit, recurring deposit or liquid fund, it could continue earning interest until your travel date.
For example, if you convert Rs 1 lakh into dollars six months before your trip, the money remains locked in foreign currency. During those six months, you miss out on any interest or returns that the money could have earned in India. And if the rupee strengthens, you may not gain anything from converting in advance.
Another factor to consider is the cost of currency conversion. Every time you exchange rupees for dollars, you may have to pay exchange-rate margins, forex conversion charges, GST and other service fees. These costs can add up over time.
For instance, if you convert Rs 10,000 into dollars every month for 10 months, you may end up paying conversion-related charges 10 separate times. However, if you exchange the money in one or two larger transactions, the total cost is often lower.
Saving in dollars generally makes more sense for people who travel abroad frequently, especially to the US or countries where the local currency is linked closely to the US dollar. Such travellers may be able to use the dollars repeatedly without converting money back and forth.
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