Trying to work out the best and safest way to pay for holiday spending is complicated. Banks, credit card companies and money exchange bureaux have a wide range of charges and exchange rates.
Here are our tips for getting best value on holiday money.
1. Buying foreign currency in advance
There are lots of options available for changing pounds into foreign currencies. The difference between these choices can be startling, so do shop around in advance.
Ordering online and having your holiday money delivered to your door is often the best value for money option. The one worry with this option is that you may not have heard of the exchange bureaux offering the best rates. And you have no protection against a bureau going bust. Although that’s highly unlikely, pick a name you trust if buying from an unknown quantity would cause unnecessary stress. There is also the added risk with this option that your money may not arrive on time if you order close to your leaving date.
You can also buy foreign currency over the counter. These sellers are more likely to be familiar high street names, and you have the added reassurance that you get your foreign money there and then. The rates on offer are a bit lower than online orders.
Watch out for high street banks and retailers that offer poor exchange rates and charge fees on top. When changing a small amount, these fees can have a disproportionate negative effect on value for money.
Another thing to be aware of is that some exchanges have tiered rates; so it may be more advantageous to change, say, £501 rather than £499. If the amount you want to change is close to a threshold – such as £200, £500 or £1,000 – check the rate either side so that you get the best possible price.
Whatever you do, don’t change your money at the airport just before you get on the plane. Airport exchange rates and fees are amongst the worst available.
Cash, of course, comes with the risk of loss or theft. Make sure you split your cash between people travelling in your party to minimise the risk of loss. Also, make sure your travel insurance covers holiday money. You could also use your travel insurance cash limit as a guide to how much cash you should take with you.
2. Credit cards
Credit cards can be among the best ways to spend money abroad, but beware, the difference between different cards can be enormous. Specialist travel credit cards are available which charge no or very low cash withdrawal fees and low rates of interest on cash withdrawn. They also offer amongst the best exchange rates.
If you travel regularly, then consider a specialist travel credit card, but make sure you pay the balance off before your statement date to avoid high ongoing interest charges.
An added extra that comes with credit cards is Section 75 protection. This means that the credit card provider and the retailer are jointly liable if you return home and find that your purchase is faulty.
3. Debit cards
While some (but not all) credit cards offer the best value on foreign spending, their close cousins, the debit card are not so hot.
Spending abroad on these is likely to result in fees for each purchase, high cash withdrawal fees and poor exchange rates.
Keep these in your wallet for use in emergencies only.
One or two debit cards do offer reasonable value, but you would probably have to change your bank to get your hands on one. Much easier to get a new credit card.
4. Travellers cheques
Once upon a time, travellers cheques were the way most people carried their holiday money. You exchange these numbered cheques abroad as and when you need cash. If they are lost or stolen, you can have new ones delivered by telling the issuer which cheques have gone missing.
Although the exchange rates offered are reasonable, and your money is secure, they are a bit of a faff. You have to find a money exchange or bank abroad, wait in a queue to be served and so on. Not the way most people want to spend their time on holiday.
A modern alternative is the prepaid travel card. You simply load this up with foreign currency before you travel and spend or withdraw cash when required. It may take you a bit longer to get a replacement card if you lose it, than it does to get replacement travellers cheques.
And here are five holiday money tips:
When using a credit or debit card abroad, pay in local currency as your credit card provider will often offer a better exchange rate than the local merchant.
When buying foreign currency at home, use a debit card to avoid credit card interest charges and cash transaction charges.
Exchange rates can be volatile, especially in the wake of the UK’s vote to leave the European Union. Timing your currency exchange can be extremely difficult in light of fast changing political and economic expectations, so you are probably best to change your money when you see a rate you are happy with.
If you’re hiring a car, it’s worth remembering that a credit card can sometimes give you better options than a debit card. By leaving your credit card details you can avoid the need to put down a large cash deposit, or otherwise be obliged to purchase upgraded insurance which you might not want.
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