How to get the best deal on your travel money
There are ways you can make your cash go further and it’s wise to pay for your holiday using a combination of payment methods. Not only does this give you more flexibility, it will also protect you should the worst happen.
Cash is vital – for a start, you’ll probably need some to hand almost as soon as you land, depending on how you plan to get to your hotel or rented accommodation. Having cash in your wallet is also a useful haggling tool – apart from the fact that local shopkeepers and market stalls may only accept cash payments, they might also be prepared to offer you a discount if you’ve got money in your pocket.
However, don’t wait until the last minute to change your sterling into the local currency. Bureaux de change at airports and hotels benefit from a lack of competition, and in most cases offer poor exchange rates. It’s well worth planning your currency exchange before you've even packed your suitcase.
Equally, you should avoid your local bank; you may be in there anyhow but that doesn’t mean you will get the most for your cash. Instead, buy your currency in the same way you would insurance or a savings account – compare rates carefully and take into account things like commission and delivery charges.
Internet currency providers tend to offer the competitive exchange rates, but remember that you may be charged for delivery so take this cost into consideration. Currency rates can also vary depending on where in the country you live, so use an online comparison tool, such as Travel Money Max, to find the best deal. In most cases ordering ahead will get you a better rate than turning up and changing cash on the day.
When changing your money, also don’t be swayed by the promise of commission-free exchanges as this doesn’t automatically mean you’ll get more money for your pounds.
Bureaux de change that waive commission may claw back some margin with poor exchange rates. In order to be sure you are getting the best deal, you need to compare the total cost in sterling of any foreign currency purchase – if in doubt, ask how many units of currency you’ll receive for your bulk sterling payment.
It may seem irresponsible to put your holiday purchases on credit, but packing your plastic is actually a sensible move. For a start, any purchases between £100 and £30,000 put on your credit card are automatically protected under Section 75 of the Consumer Credit Act – meaning you can get your money back should the worst happen.
Debit card purchases also offer some protection via the Visa and Mastercard Chargeback schemes, although unlike Section 75 these are good practice schemes, and not legal requirements.
Plus once abroad, the specialist overseas credit cards often offer better exchange rates than cash exchanges.
But if you don’t trust yourself to take your credit card on your trip, at least consider paying for the flights and accommodation in advance on it.
If you do decide to take a credit card on holiday, then there are two important points to bear in mind. Firstly, don’t be tempted to withdraw cash using your plastic (unless it’s using a specialist overseas card) – this is extremely expensive as most providers charge a higher APR for cash withdrawals plus you are also likely to be hit with a fee of around 2% for the pleasure.
Secondly, the vast majority of credit card providers charge for overseas transactions – these normally range between 2.75% and 3% and can add significantly to the cost of your overseas break.
Generally speaking, it is also best to avoid making small purchases with your regular cards because, alongside loading fees, you may also be charged a one-off transaction fee by your provider.
Check with your bank or building society to find out what charges you will face when spending abroad, and make sure you find out whether the fees are set or percentage-based.
It is however, possible to avoid these fees altogether by opting for a fee-free travel credit card. Options include the Halifax Clarity and the Creation Everyday cards – both are fee-free for spending or cash withdrawals anywhere in the world. But if you take out cash with either of these cards you’ll be charged interest from the day of the withdrawal. And of course, always repay your cards in full each month to avoid being hit with interest of 18.9% APR and 12.9% APR respectively.
If you do take a credit or debit card on holiday with you, make sure you make a note of the account details and the telephone number for cancellations in an emergency. You should also consider emailing this information to yourself and leaving it with a trusted friend or family member.
Pre-paid cards and travellers' cheques
Pre-paid cards are another way you can avoid paying fees overseas. It's fairly easy to get a pre-paid card, as no credit checks are carried out when you apply. They are ideal if you want to budget when abroad but can also be used in the UK and for shopping online.
Options include the FairFX Currency Card, WeSwap Prepaid Card and the Travelex Globe Cash Passport.
With these accounts, you pre-load them with cash before you go, this is usually subject to a minimum load amount, and bear in mind it can take a couple of weeks for your card to be delivered so order it well in advance.
You can’t go overdrawn on pre-paid cards and you – or anyone else – can top them up online and over the phone. Look out for deals that also provide competitive exchange rates, so you can fix this when you load the card with a foreign currency.
However, bear in mind that not all pre-paid cards are necessarily free - there might be a charge for opening an account, putting money onto the card, inactivity, or withdrawing your cash.
Another payment option is travellers’ cheques – while these have become less popular in recent years, they can remain a good way to buy currency without having to carry a lot of cash with you. And they are an ideal way to avoid credit and debit cards fees, and to protect your money should you lose your bag or fall victim to theft. Just remember to make a note of the serial numbers so you can replace these should you need to.
However, bear in mind that exchange rates of these cheques aren’t always as competitive as changing currency, plus you’ll need to show ID in order to cash them. Not all retailers accept travellers’ cheques, while other outlets will hit you with commission or handling fees. Larger denomination cheques will, therefore, cost you less to exchange.
It can be expensive to change travellers’ cheques back into cash once you return from your holiday, but as they don’t carry expiry dates you can keep unused ones until your next trip abroad.
The difference between two currencies; specifically how much one currency is worth relative to each other. For example, if £1 is worth $1.50, converting sterling to US dollars, the exchange rate is 1.5. Converting dollars to sterling at those levels, the exchange rate is 0.66, so $1 is worth 66p. There are a wide variety of factors that influence the exchange rate, such as a country’s interest rates, inflation, and the state of politics and the economy in that country.
Issued by a bank as part of a current account and, in a nutshell, serves as electronic cash. Unlike a credit or charge card, where you get an interest-free period before you have to settle the bill, the funds spent on a debit card are withdrawn immediately from your current account. Unless you’ve arranged an overdraft, if you don’t have the cash in the account, you can’t spend it.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.