When should you buy your holiday cash?
Currency fluctuations and high bank fees could leave travellers feeling the heat this summer. Adam Williams finds out more
As the poor weather continues across the UK, many will be dreaming of an overseas trip. But holidaymakers could be left spending more than they expected if they don’t plan in advance, due to the volatile performance of the pound and the high charges applied by banks.
Sterling rallied to £1.43 against the dollar in mid-april, the strongest performance since the UK’S vote to leave the European Union in June 2016. However, these gains were lost by the end of the month amid poor UK economic growth figures, as sterling slumped to a 12-week low.
This turbulence demonstrates the difficulties facing those venturing overseas, with business travellers and holidaymakers facing tough choices on when and where to buy their foreign currency.
When should you buy?
Matt Laubscher, of Debenhams Personal Finance, said: “This regular fluctuation in rates can make it difficult for consumers to know when to buy. The best that people can do is check for regular news updates and ensure they’re armed with the most current information on market temperament.”
He also advises planning currency purchases well in advance, so travellers are more likely to capture those optimum rates.
Hannah Maundrell, of consumer finance website Money.co.uk, said that rather than attempting to time the market, holidaymakers should buy their foreign cash in installments in order to spread the risk. “Trying to predict what will happen to the exchange rate is impossible because you never know which way currency will go,” she warned. “If you see the rate go in your favour but your holiday isn’t for a few months, you could buy half now and half closer to the time, meaning you won’t feel so bitter if you wait and the rate drops again.”
Using bank cards abroad
Even if they buy cash at the best rate, many Britons still pay more than is necessary for their foreign currency by using their normal bank cards.
According to Weswap, which allows customers to lock in a rate before they travel, almost a third of UK travellers withdrew cash for their holiday using their normal credit or debit card when they arrived at their destination. This is a costly option, as a high street bank typically applies fees of around 5pc. Weswap said the average withdrawal of £170 costs £8.50 in fees – not including any charges that the foreign cash machine operator may add.
Lloyds Bank current account holders are charged a non-sterling transaction fee of 2.99pc, plus a foreign cash fee of £1.50 for each withdrawal. Natwest charges its debit card users a 2.75pc non-sterling transaction fee, plus a foreign cash fee of 2pc (with a minimum charge of £2).
These minimum charges can make low-value transactions particularly expensive. For instance, withdrawing the equivalent of £10 using a Natwest account would cost £2.28 in fees.
Mrs Maundrell said travellers should instead consider a fee-free travel card. The Barclaycard Platinum Travel credit card has no fees for either purchases or cash withdrawals when abroad. In the current account market, the debit card offered by digital bank Starling has no fees applied when used overseas. Digital banking services such as Monzo and Revolut also offer fee-free spending and withdrawals abroad, although Monzo charges 3pc on withdrawals above £200 per 30 days. Always opt to use your card in the local currency.
Where you travel can also have a big effect. A study published by the Post Office found that Sunny Beach in Bulgaria offered the best value for money for UK travellers in 2018, with typical holiday expenses costing around a quarter of those in Singapore, the most expensive place to visit.
Travellers visiting countries that have few cash machines may prefer to exchange currency before travelling.
‘The savings are typically 10pc when comparing the best online providers and the worst banks’
Ordering cash online
Peter Rudin-burgess, of Compare Holiday Money, a comparison website, said buying online and having cash delivered through the post was the cheapest option, although there are risks. “Typically, the savings are 10pc when comparing the best online providers and the worst on the high street, such as the banks. This saving is around 15pc when compared to the airport or ferry terminal kiosks.”
He added: “However, there are risks you need to weigh up. While nearly every online supplier delivers money by the insured Royal Mail Special Delivery service, you must ensure you have left enough time to get your money before you leave.
“Also, be wary of walking around with large amounts of cash in your back pocket or bag.”
Mr Rudin-burgess said supermarkets and the Post Office let customers order online and collect in their local branch, eliminating the risk of postal delays and securing better rates. “The supermarkets are the best places to buy, but it is best to book your currency online to pick up in person,” he said. “Many places have different online and in-branch rates, so without booking online you will get less for your money. The worst high street rates come from the banks. Not everyone has a Debenhams on their doorstep, but of the bricks-andmortar travel money providers, they offer strong rates at the moment.”
Pre-paid travel cards
While pre-paid travel cards often offer no fees, they use less competitive exchange rates than others in the market, Mr Rudinburgess said.
“The pre-pay currency cards market is getting very competitive but remember that ‘fee free’ is like the 0pc commission claims made by nearly all bureaus de change. The profit is made in adjusting the exchange rates.”
Mr Laubscher advised travellers to take a bit of cash to pay for small expenses, such as trips on public transport and tips in restaurants: “It’s not easy to know how much travel money you will need so ensure you have buy-back options with your leftover currency and you won’t be left out of pocket.”