The Smart Guide to Holiday Money

Hard cash – cheap foreign currency

First things first – under no circumstances should you buy your foreign cash at the airport or from your tour operator. There’s no competition at the airport which means poor rates, and you will also pay for the convenience a tour operator offers.

The cheapest place to get your currency is online. You can compare rates without trekking around the high street and then have the cash delivered to your door. And the rate is generally better because they providers have fewer overheads. The one drawback of buying currency online is paying for delivery, which has to be done by courier because it’s money. That usually costs £6 or so, although it can be free if you’ve got a large order and if you order online with Travelex, you can sidestep a charge by arranging to pick up your currency yourself.

Cheapest credit cards to use abroad

Unfortunately, using credit cards abroad is a seriously expensive move. Although the exchange rates are normally quite competitive, your bank will then slap on some really hefty extras such as loading fees, transaction fees, cash machine charges and interest on cash withdrawals, which is often a lot higher than your normal APR. And no matter what card you’re using, you’ve got to watch out in case the foreign ATM you choose charges yet another fee on top. If you still want to use a credit card abroad there are some tailored specifically for foreign use. Look to see, for example, whether your card charges for foreign transactions or cash withdrawals.

Debit cards

In the UK cash withdrawals using debit cards are usually free, but abroad it’s a different story. While you’re away most debit cards will not only charge you a withdrawal fee but also conversion and transaction fees. You can typically expect to pay £4-£5 in charges for every £100 you spend or withdraw which can really add up! As with credit cards, if you’re planning to use your debt card check to see if foreign transactions and withdrawals are free. Be aware too that debit cards might offer free transactions in the Eurozone but charge for purchases and withdrawals elsewhere.

Travelers’ cheques

Undoubtedly these are the most old-fashioned form of travel money, but they are still going strong. Travelers’ cheques are available in six different currencies – American, Australian and Canadian Dollars, Japanese Yen, Euros and sterling – and are effectively cash with a built in security policy, which makes them worthless and easily replaced if stolen.

Although you might pay a fee to buy them there aren’t any fees when you cash them in as long as you use an American Express fee-free partner. Just remember to check the exchange rate – it’s usually much better to cash them in at a bank than in a hotel.

Travel money cards

Many card providers have twigged that people aren’t happy about paying high charges and have introduced prepaid credit cards especially designed for travel. These work just like any other debit or credit card, except you have to pre-load them with credit, like mobile phones. What’s more, these cards are not directly linked to your bank account, so if your card is stolen, the most you stand to lose is the balance on your card.

It’s not all good news though. Most will try and squeeze in some charges for things like loading the card with cash, although there aren’t usually charges for transactions and withdrawals. As well as the charges, you also need to check the exchange rates they offer to make sure you get the card that’s right for you.

A possible advantage is that some travel money cards will load as the foreign currency, normally US dollars or Euros and these usually have very good exchange rates. However, the exchange rate is fixed when you load the card; if it then goes down you’re laughing, but if it goes up you might not be. They also tend to be costly outside the currency area (e.g. using the dollar card in Europe).

The Caxton FX global card is one of the best pre-paid cards around: it’s free to buy (apart from a £10 deposit which is then added to your balance), and the only other charge is for withdrawing cash in the UK. Another prepaid card worth looking at is the FairFX currency card, which is often good value.

Sticking to a budget abroad

• Only take cash with you. Leave the credit cards at home (apart from one for emergencies).
• Work out a budget before you go away and then take the money out in cash. You will be far more conscious of actual money leaving your wallet each day than you would a card. Just remember that if your cash gets lost or stolen, you have no redress, so be careful!
• Get a good travel insurance deal – shop around online so you get the right cover at the right price. A one year policy usually offers the best value if you go away more than twice a year. DON’T get lumbered with the over-priced policy your tour operator will try to sell.