Make holiday money go further, but don’t wait to the last minute
IT IS tempting to leave buying your foreign currency until the last minute and perhaps continuing to use your regular credit card abroad. Both activities could raise the cost of a holiday disproportionately.
Since the Brexit referendum a year ago, sterling has fallen drastically in relation to the euro but those who anticipated such a change and purchased at the old rate will now have a distinct advantage.
Two ways to lock in a currency rate – which might currently be a good idea for the US dollar – is to use a prepaid card or app. This allows you to convert sterling into the currency required and then not be at the risk of a poor local rate on holiday.
At any time the card or app can be topped up to gain the best rate going.
In addition to the almost wholesale rate that can be obtained, the associated fees are usually low. Many such cards can be bought through a bank or bureau. It will display the logo for either MasterCard or Visa.
Prepaid travel cards are issued free by BreadFX, Caxton, Debenhams, Even, Moneycorp, Post Office, Seasons, Tui, Travelex and Virgin Money. All these have no monthly or annual charges apart from Even which is £5 monthly.
The range of currencies available on a prepaid card can be considerable, such as 13 different ones with the Post Office like Croatian kuna, Thai baht and Polish zloty. FairFX provides euro and US dollar cards for £9.95 which incur a 1.50 euro or $2 fee when used at an ATM.
Moneycorp offers a multicurrency card, known as Explorer, with a 4.99 per cent exchange charge and £3 monthly fee if unused after one year. Revolut has an app and card with a 0.05 per cent fee and no ATM charge on withdrawals up to £500 monthly.
To use a currency app, sign up and await a password-protected scheme which can be linked to your current account.
You then transfer a sum to the app. Check the rates and purchase when ready. A debit card is forwarded which is integral to the app.
Do not expect most bureaux de change to offer the same terms. Specialists claim the rates can be as much as 15 per cent lower, notably if a departure point like an airport is used. The last 12 months have seen more volatility in rates than probably in a decade.
To check rates, use such online sites as Compare Holiday Money and Money.co.uk. Then, to find the handiest location, consult Money Saving Expert.
If using a bureau, it can be worth asking for a slightly better rate if converting a fairly valuable sum. Some may make a small charge for using a debit card and require ID. Therefore take out the cash from your bank or building society.
Many banks and even supermarkets today offer currency. Quite often, two rates are available: in store and online to collect with the latter far more favourable. In some cases, such as Santander, it is only available online.
Check if there is a discount for existing clients. M&S Travel Money, for instance, has preferential currency rates for those using an M&S credit or debit card.
Credit cards abroad have the benefit of keen rates but, on the downside, may incur a usage fee as well as a transaction charge if cash is taken out through a foreign ATM. The former can be 2.99 per cent, such as with the AA, American Express, Asda Money, Barclaycard (apart from Travel Visa), HSBC and MBNA.
The good news is that several providers have no charge in the EU (like Metro Bank) and a number worldwide.
According to research by Moneyfacts, among those with no usage fee globally are Creation (Everyday), Halifax (Clarity), Lloyds (Avios Rewards), Nationwide (Select), NatWest (Reward Black), nuba (All Round), Post Office (Platinum), Royal Bank of Scotland (Reward Black), Saga, Santander (All in One, Zero) and Virgin Money (Travel).
These cards are all fee-free apart from Lloyds (£24pa), NatWest (£84pa), RBS (£84pa) and Santander (All in One £3pm).
There is also a key benefit in using a credit card, apart from the detailed statements, in that purchases come with consumer protection when £100-£30,000 per transaction is spent.
Debit cards might appeal but, whilst the conversion rate will be almost wholesale, up to three different charges could be imposed.
The first is a usage fee of around three per cent. This is because the provider considers the transaction to be a cash advance even though the sum will be taken immediately from your balance. The second is a ‘withdrawal’ charge of usually two per cent.
To make some debit cards even more expensive, check if a third ‘spending’ charge will be raised. This is a flat sum regardless of the amount taken out and can be £1-£1.50 each time. Those known to levy such a charge, according to MoneySavingExpert, are Lloyds Bank and two of its subsidiaries (Bank of Scotland and Halifax), as well as two Spanish banks, Santander and Sabadell (TSB).
Foreign transactions can still bring worries:
Notes can be out of date, notably when buying an unusual currency abroad
Exchange services are unregulated and so the credit placed with on a prepaid card or app is vulnerable
Converting an invoice – perhaps at a hotel or restaurant – into sterling at the retailer’s rate, known as ‘dynamic currency conversion’, increases the cost typically by four per cent
Choosing the sterling option loses the one in five who accept this invitation a total £380m annually, according to currency specialist FairFX.
In the past, travellers’ cheques would have been used. First introduced in 1772 by the London Exchange Company, the idea was developed by Thomas Cook who issued ‘circular notes’ from 1874. They are still available and great for security as, in the event of loss, their value will be reimbursed.
There is also no commission charge but the seller makes a healthy profit on the poor exchange rate when the cheque is denominated in another currency.
Before purchasing travellers’ cheques, ensure the country to be visited accepts them and which banks.
For instance, American Express is accepted in Australia by ANZ Bank as well as the Amex Foreign Exchange Service and certain branches of Commonwealth and NAB.
Contactless cards may appeal but when used abroad can result in the charge being automatically converted into sterling at a rate chosen by the retailer.
The machine used may even state that a “fixed exchange rate” is offered but ignore the lure as the conversion will still be unfavourable.