Being clever with your holiday cash

Since the recession struck, the value of the pound against other currencies has plummeted. Although we are seeing revival now, for all of those on tight budgets getting the cheapest foreign currency possible is a must.

The only way to get good value foreign currency is by planning in advance. Whether it’s plastic or hard cash you’re after, read on for the best deals and all the insider info.

Hard cash – cheap foreign currency

First things first – do not buy your foreign cash at the airport or from your tour operator. There’s no competition at the airport which means bad rates, and you will also pay for the convenience of a tour operator.

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 because online outlets have fewer overheads, the generally have better rates. The one drawback of buying currency online is paying for delivery, which, since it is money, has to be by courier. That usually costs £6 or so, although it can be free for large orders 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

There’s no way round it - using credit cards abroad is seriously expensive. 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. The best one on the market is the Santander Zero card, simply because it is the only one that does not charge for foreign transactions or cash withdrawals (although you will still be paying 27.9% APR). Other cards that are less extortionate than most include the Post Office credit card, the Nationwide credit card and the Saga credit card for over 50s.

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/withdraw and that can really add up!!

That said, the best of a bad bunch is the Nationwide Visa debit card, which comes with a flex account. Transactions and withdrawals with this card are free in Europe, although you will normally pay 0.84% or more of the purchase/withdrawal outside the Eurozone.

Travellers’ cheques

These are undoubtedly the most retro form of travel money but they are still going strong. Travellers’ cheques are available in five different currencies – American, Australian and Canadian Dollars, Euros and sterling – and are effectively cash with a built in security policy, which makes them worthless and easily replaced if stolen.

One downside is that you might pay a fee to buy them, but when it comes to cashing them in there aren’t any fees as long as you use an American Express fee-free partner. Just be sure 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.

But, although there may be no charges for transactions and withdrawals, most try to squeeze in some charges elsewhere – e.g. for loading the card with cash. 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 you might not be if it goes up. They also tend to be expensive outside the currency area (e.g. using the dollar card in Europe).

The Caxton FX global card is the best pre-paid card 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 include the FairFX currency card, which is often good value.

The best way to stick to a budget

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 than 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 will probably be 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.