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Best way to spend and take cash abroad

Passport and cash

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Perhaps we've simply been spoilt by favourable exchange rates for too long, but for UK holidaymakers the prospect of travelling to the Continent has lost some of its gloss this year as the pound has hit a record low against the euro.

Gone are the days when the euro was typically worth 67p against the pound seemingly irrespective of the European Central Bank's (ECB) attempts to build its reputation. Now the euro has smashed through the 80p barrier, its highest level since the single currency was first introduced in 1999.

Much of this can be accredited to the ECB which has held rates firm since last June despite the financial turmoil. By contrast, the Bank of England has been forced into three quarter point cuts since the start of the credit crunch.

For the millions of British holidaymakers eagerly anticipating the half-term and summer holidays there is understandable disappointment at the weakening pound. This could be compounded by hefty foreign exchange fees and transaction costs so it's crucial to pick the right foreign exchange product whether it is a currency conversion, a credit, debit card or a prepaid card.

Is plastic fantastic overseas?

With an overseas credit card your first consideration should be the fees and the interest rate. As a result it's often a good idea to have a credit card that you use exclusively for overseas purchases and that you can pay off in full each month.

A credit card with purchase protection for at least 90 days is the best option for overseas spending - this will safeguard any spending against accidental damage, theft and robbery. In addition look for cards with 0% offers on purchases so you won't pay any interest for that introductory period, and watch out for foreign exchange fees in Europe - for more on the fees to look out for read 'Beware the cost of overseas spending'.

Credit cards tend to offer better rates of conversion than foreign exchange bureaux because you benefit from Visa and MasterCard wholesale rates - if you change your money at a bank or high street bureau de change, you will get a less favourable retail rate.

For example, on Tuesday April 29, Moneysupermarket look at how much £500 would cost in sterling. We compared rates from a range of banks, specialist currency exchanges, credit cards and pre-paid cards and a £500 purchase would have cost you £394.33 if you had used a no-fee credit card, while buying that amount from Barclays would have cost £413.09.

It is important to opt for a card that doesn't charge for oversees usage however, otherwise this benefit can be wiped out.

With the launch of a new credit card from Abbey, there are now five credit cards that don't charge for usage in Europe: the Thomas Cook Credit Card, the Nationwide Gold Card, the Post Office Credit Card, Saga's Platinum Credit Card and the new Abbey Zero card.

The Abbey Zero Card offers 0% on purchases for up to six months and no loading fees on foreign purchases although its standard typical APR is high at 18.9%. Similarly the Saga Platinum Credit Card offers 0% on purchases for the first six months and commission free purchases within the Visa Europe region and a typical APR of 15.9%. The six month 0% period means these cards are well suited to travellers going away for a lengthy period of time but Saga does, however, levy a 1% fee if you use the card outside the EU.

The Post Office Credit Card and the Nationwide Gold Card both offer 0% on purchases for three months with 0% commission on purchases overseas and have a typical APR of 15.9%.

The Thomas Cook Credit Card offers 0% on balance transfers for nine months with a 0% foreign exchange fee on all purchases abroad and a typical APR of 17.9%.

If you plan to withdraw money while abroad stick to a debit card - the Nationwide Flex debit card is the best product for overseas cash withdrawals as there are no extra charges. In contrast, a £100 withdrawal with a Lloyds TSB debit card will incur a £2 transaction charge plus a 2.99% foreign exchange fee.

Currency conversions - what to look for

Carrying overseas currency has many advantages - it's easy to use, isn't linked to a bank account and there's no risk of being stung by hidden card fees.

However, carrying cash has its disadvantages too, not least because it's easily lost or stolen and as a result you should only carry an amount that's covered by your travel insurance.

There are also many hidden traps to fall into. For example, many currency exchange services advertise their products as 'commission free', but that doesn't automatically mean you're going to get a great rate. Some companies recoup the money they would otherwise get from commission by offering a less competitive exchange rate - it is therefore well-worth shopping around and comparing rates from a range of providers.

If you want to take some foreign currency away with you it is well worth planning ahead as you will not get the best rate of exchange if you wait until you're at the airport or ferry port. High street banks and building societies also tend not to offer the best rates.

There are a number of online currency providers including Fairfx, Ice, and onlinefx. These enable you to order your currency over the internet and have it delivered to your home or collect it from an airport or train station. Other companies such as Marks & Spencer and Tesco offer similar services.

When we compared rates last Tuesday, Fairfx gave the most competitive exchange rate - it was offering 1.2380 euros to the pound meaning you would have picked up £500 for £403.88.

When are prepaid cards the solution?

Prepaid cards are the new kid on the block. If you are a fan of traveller's cheques a pre-pay card could be a good alternative. One of the major disadvantages of traveller's cheques is you are often charged twice - you pay commission when you buy the cheque and again when you exchange it in a hotel or bureau de change.

Pre-pay cards get around this second fee. You load money onto the card and they can then be used like a debit or credit card. Safety is a key feature because if you report a lost or stolen card to a provider it can quickly send you a replacement. There is also no debt risk as you can only spend what is on the card.

There are many fees to be wary of however, including ATM withdrawal fees, application fees and charges for top-ups. Some cards will waive the application fee if you load a certain amount onto it. FairFX's Euro Currency card has costs £9.95, but is free if you put at least £500 onto it.

You should also think about how you can top up - some prepaid cards are restricted to face-to-face or phone top-ups so it's worth checking this as products that have online access may well be a better option as you can then load your card easily and cheaply while you're away.

If you are stuck with an uncompetitive debit or credit card and don't have time to get a new one, the Caxton FX prepaid card is a good option as there are no hidden fees, just a ¯¿½2 withdrawal fee, and it has an improved conversion rate compared to currency.

There is no extra cost for purchases however and when Moneysupermarket compared exchange rates someone using the Caxton FX card for a £500 purchase, would have got the same exchange rate as the best credit cards, so it would have cost them £394.33.


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