How to get the best deal on your holiday money
By Kate Saines
Going on holiday is an expensive business. So finding a cheap deal on your foreign currency which includes a great exchange rate is always going to be top of your money-saving priorities when jetting away.
These days there are many holiday money providers willing to offer you free commission, but do these companies still offer the best rate of exchange?
Meanwhile there is a huge and bewildering market for pre-paid cards to navigate and all sorts of charges to consider when using our credit cards.
Who would have thought something as simple as swapping a few quid for a few Euros could be such a minefield?
To make the process a little easier, here are our top tips for ensuring you get the best deal on your holiday money this year.
Get organised
Buying your foreign currency at the last minute is a very bad idea indeed if you want to get the best rate.
In fact, if you leave exchanging your cash until you arrive at the airport, you will be landed with the most expensive rates and a pretty high rate of commission.
So, Rule Number One is to make sure you organise your holiday money well in advance of your trip.
Bob Atkinson, travel expert at Moneysupermarket.com, said: "Holidaymakers who spend time researching all the different options available before they head off abroad will reap the rewards from getting the best deals for their travel money."
Likewise, don't feel you need to stay loyal to your bank and use their bureau de change. There is an array of alternative places to buy your currency – supermarkets and the Post Office to name a few – and they often provide better deals.
Don't stick to one payment method
The first step towards being organised is to decide whether you want to use cash to make purchases on holiday, travellers cheques, credit cards or pre-paid cards.
There are financial and practical pros and cons to all these methods, and you may find it works out cheaper and safer to use a combination of two or three.
Independent financial research firm, Defaqto, advises travellers to take a mix of sterling, local currency (where possible), travellers' cheques and debit and credit cards in order to prepare for all eventualities.
Beware, as there may be restrictions on the way you can spend at some destinations.
For example, certain countries do not accept credit cards and debit cards as widely as we do in the UK or the US.
Defaqto said US dollars and US travellers cheques may be preferred to sterling or Euros in some countries, while some European shops don't have card terminals so taking plenty of currency would be beneficial in these instances.
Beware of 'commission free' foreign currency
Many foreign currency providers advertise their 'commission free' exchange rates in a bid to lure you into using their service.
However, Defaqto warns that 'commission free' does not always mean 'cost free' as providers make profits on the difference between their buy and sell rates.
For this reason it's essential you also compare the rates of exchange even if the provider is offering commission free currency.
Rates change daily, so it's important to look at lots of providers to compare their rates instead of just following one company's exchange rate and buying when the rate looks best.
With so many organisations offering commission-free cash, it's also worth looking at other features, such as home delivery fees when making your decision on where to get your money.
Many firms are now offering free delivery. These include the Post Office, whose Travel Money service has been highly acclaimed as offering competitive rates. It also provides free delivery to your door on currency ordered online.
Many foreign currency providers will charge you for this service unless you order over a certain amount of cash – sometimes as much as £700. The charge varies but can range from just under £2 to up to £5.
Read more: Choosing the right type of travel insurance
Don't get caught out by credit and debit card charges
Credit and debit card providers – credit cards in particular – are adept at finding ways to make money out of us.
Going abroad and spending on our plastic is just one way they reap their rewards from us.
Bob Atkinson of Moneysupermarket suggests if you are planning to make cash withdrawals on your cards whilst on holiday, it's essential you understand the charges for ATM withdrawals before you go.
"If you are planning on using an existing debit or credit card abroad, then check the small print on the card and make sure you understand all of the charges before you depart."
As well as ATM fees, watch out for foreign exchange fees. Research by price comparison website, Confused.com, found spending £500 overseas on a credit card not designed for use abroad could set you back £13.75 in charges.
There are credit cards designed for using abroad and they either offer no foreign exchange fee on purchases made abroad, or reasonably low fees such as 2.75 per cent.
Some might offer zero per cent fees on purchases in Europe and one per cent worldwide.
If you are not happy with the deal your current credit is offering you when abroad, apply for a new card – but make sure you do so in enough time for the card to arrive before you jet off.
When given the option, pay in the local currency
Whilst on holiday if you are given the option of paying in sterling or in the local currency always choose the local currency.
This applies whether using ATMs, paying in restaurants or buying goods in shops or at the airport.
If you pay in sterling the retailer, bank or restaurant will handle the conversion, leaving you in the dark over the exchange rate they've used and any fees or charges until you see your credit card bill.
Chris Griffiths, head of credit cards at Confused.com, said: "Always opt to pay or transact in the local currency to ensure any charges are those from your bank at home which you already know about.
"If you're not offered a choice on the receipt refuse to pay and ask them to bring you another bill in the local currency."
Consider pre-paid cards
The market for cards which can be 'topped up' with travel money before you go abroad is growing rapidly.
According to Bob Atkinson at Moneysupermarket, pre-paid cards lead the way when it comes to giving consumer the most spending power while abroad.
"Best buys such as FairFX or CaxtonFX have no purchase, withdrawal or foreign loading fees and can be topped up online or over the phone for free," he said.
"In addition, they also provide protection for travellers, should your card be lost or stolen, it can be replaced quickly, as it is a great alternative to cash."
Like all products offering you a currency you need to look at the exchange rates. The Caxton FX pre-paid currency card works on an exchange rate of two per cent off interbank, a currency trading platform.
However, Rupert Lee-Browne, chief executive of Caxton FX, pointed out: "Once the money is on your card, it's all yours. So, unlike travellers' cheques and most debit and credit cards, if you've got €300 on your card then you can spend €300.
"Plus you can top it up online for free at any time of the day or night."
There are several pitfalls to be aware of before buying these cards, which can be obtained online or through high street stores.
The exchange rate you receive is fixed to the time you topped up. The major disadvantage of this is that you could lose out on a better deal if exchange rates improve after you've loaded your cash.
However, this also works the other way and if rates get worse, you'll be quids in.
Currently sterling, Euros and US dollars are the most common currencies you can use on a pre-paid card. If you are travelling to a country where these currencies are not used you might have to pay additional charges.
Pre-paid cards are not covered by Section 75 of the Consumer Protection Act. So if you make a big purchase on the card and something goes wrong, you'll not be able to claim the money back via the card provider.
Use the Myfinances.co.uk comparison tools to find the best deal on a new bank account.
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