How to make the most of your holiday money
Cash
Wherever you're going, it makes sense to have at least some local currency in cash.
However, when it comes to exchanging currency, it's important to be aware that the commission you're charged and the exchange rate on offer affect how much foreign cash you'll get for your pounds.
Companies that change money ‘commission free' don't always offer the best exchange rates - so although this claim sounds good, it doesn't guarantee you'll get a good deal overall.
Top tips for cash users:
• If you want to make sure you get the maximum number of dollars, euros or yen to each pound you swap, it's crucial to compare currency providers. The key question to ask is exactly how many units of foreign currency you'll get for changing a lump sum in sterling.
• Exchange your currency in advance of jetting off. Leaving it until the last minute or, even worse, changing money at the airport, will probably mean you get a poor deal.
• Consider ordering your currency online. Often, companies offer better exchange terms to online customers than in high street bureaux de change, and you can choose to have your foreign cash delivered straight to your door.
• Ensure you have travel insurance in place so you'll be protected in the event your wallet or handbag is stolen. If you don't and you're the victim of crime abroad, you'll simply have to kiss goodbye to any money and valuables you lose.
Travellers' cheques
While many holiday makers now choose to spend using cash or plastic cards overseas, some still use travellers' cheques.
Travellers' cheques are often cheap or commission-free to buy, but are only available in a limited number of major currencies (including US dollars, pounds sterling and yen). Once you reach your destination, travellers' cheques can be spent with retailers or cashed at banks and bureaux de change.
Fans of travellers' cheques point out that they offer holidaymakers more security than cash. If your travellers' cheques are lost or stolen, they can usually be replaced within 24 hours.
However, the exchange rate you'll receive when buying travellers cheques is likely to be worse than the best rate you'd receive for buying cash. This means you'll probably get less foreign currency per pound you spend.
What's more, some foreign retailers seem less and less keen on travellers' cheques, preferring to accept payment by cash or card. This can make spending or cashing travellers' cheques inconvenient and time-consuming.
Top tips for cheque users:
• Only buy as many travellers' cheques as you think you'll need. Changing them back after your holiday may mean you lose money as ‘re-exchange' rates on them tend to be poor.
• If you do have travellers' cheques left over after your trip, you could consider saving them. They don't carry expiry dates.
• Consider where you'll cash your travellers' cheques in advance. Some exchange outlets abroad may charge you commission or handling fees, so watch out for these.
• Keep a note of the individual serial numbers on each of your travellers' cheques. This will make it easier for you to get them replaced, should you need to do so.
Credit cards
In a famous TV advert, credit cards were once referred to as our ‘flexible friends'.
If you use the wrong credit card for spending abroad, however, it's likely you'll be hit by several very unfriendly charges.
When you pay by credit card overseas, the exchange rate you get will depend on your card provider's daily ‘wholesale rate'. However, you'll probably have to pay an additional ‘load' of up to 2.75% which will mean you'll get less foreign currency per pound you spend.
Alternatively, if you withdraw cash from a hole in the wall using your credit card, you'll probably have to pay a fee of around 2.5%.
Even worse, if you use the wrong credit card to take money out of a cash point on holiday, it's likely you'll be charged interest on your withdrawal even if you repay it in full before the end of the month.
As cash withdrawals usually attract higher rates of interest than other credit card spending, this could see you paying upwards of 20% APR on any money you take out.
Tips for credit card users:
• If you know you'll want to use a credit card on holiday, apply in advance for one that doesn't come with all these nasty fees. The Post Office Platinum card won't charge you anything extra for overseas transactions, though you will still be charged 2.5% for cash withdrawals. The Abbey Zero card is also worth considering, and Saga's credit card is now the only one that doesn't charge for cash withdrawals abroad.
• Write down the telephone number of your credit card provider(s) and leave it in your hotel safe. This way, if your card is stolen or lost, you'll be able to call your provider and cancel it.
Debit cards
Many debit card providers will hit overseas users with very similar charges to those levied on credit card spending. It's likely you'll face a ‘load' and cash withdrawal charges if you use your debit card abroad.
In addition, some debit card providers charge a one off ‘transaction fee' of up to £1.50 each time you spend on your card.
If your bank is one of them, you'll have to pay this extra charge whenever you spend on your card or withdraw cash from an ATM.
Top tips for debit card users:
• Check whether your debt card will punish you for using it abroad. If so and you want to use a debit card overseas, it may be worth opening a FlexAccount current account with Nationwide. Its debit card charges no ‘load' on spending in Europe (though will impose a 1% fee for spending in other countries from 1 July 2009). It also allows fee-free cash withdrawals.
• Be aware that you won't get Section 75 protection when you pay for purchases by debit card. On the other hand, if you buy anything for £100 and £30,000 on your credit card, you'll be entitled to claim a refund from either the retailer or your credit card company if your goods are not received or ‘as described'.
**This material is for information purposes only and should not be considered financial advice. We strongly encourage our readers not to rely solely on this content, but to seek independent advice when making financial decisions.**
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