How to find the best currency deals
It's second nature us to shop around for the top hotels, cheapest flights and most competitive insurance before we jet off on holiday but finding the best deals when it comes to foreign currency can be a particular headache.
There are so many options available that spotting the best one is not always easy. Here we look at some of the tricks that will help you get the most bang for your buck - wherever you are planning to go.
One factor that leads to confusion is commission. Foreign exchange providers like to advertise the fact they are 'commission-free' but that is meaningless if the underlying exchange rate they are offering is poor.
Travel expert at MoneySuperMarket.com Bob Atkinson says: "Never get wrapped up in the smokescreen of commissions and rates. Simply ask how much foreign currency you are getting for your pounds."
He adds that "high street travel agencies, the Post Office and banks do not give you the best deals", even though they like to market themselves as being commission-free.
So it is often better value to pay commission on a higher rate than take a commission-free lower rate.
Using your plastic
While credit cards can be useful for overseas purchases – they give added protection should there be any problems with products you buy – using one to withdraw cash while abroad should only be your last resort.
Credit cards should never be used for cash withdrawals in the UK, either, because you start paying interest from the moment you receive the cash. But use one overseas and you run the risk of all kinds of nasty charges being applied, as well as high interest rates and a lousy exchange rate.
Using a debit card to make cash withdrawals is also unlikely to get you a very good exchange rate and you will almost certainly be charged for these transactions, too, but at least you won't be stung by the interest charges that a credit card will hit you with.
Do your research
Knowing before you travel what your debit card charges will be can soften the blow. For example, if you're charged a set fee for each withdrawal, regardless of the amount you take out, you will be better off making one large withdrawal than making several smaller ones.
It's also sometimes the case that cash machines in places where there is a captive market - such as at ski resorts – can offer particularly poor value.
Providers of prepaid currency cards, which you load up before you travel, claim their products are the savviest way for holidaymakers to carry their money abroad.
James Hickman, managing director of Caxton FX, one of these providers, says prepaid cards provide a number of advantages, including exchange rates that beat the bank and fee-free spending and withdrawals. They also mean you can head abroad without carrying large amounts of cash with you."If people are looking to cut costs on their skiing trip or planning ahead, a prepaid card can definitely help," says Hickman.
Travellers can also save money by paying for the likes of holiday rentals and ski passes through foreign exchange specialists. "Instead of going through the banks (which offer poor exchange rates and transaction fees that increase the overall cost), simply open an account with a foreign exchange specialist and you will be able to transfer the money immediately," says Hickman.
Caxton FX, for example, allows amounts from £100 to £50,000 to be sent around the world electronically. Ian Strafford-Taylor, chief executive of FairFX, another prepaid currency card provider, says: "Thanks to technology, we're no longer limited to traveller's cheques to pay our way when travelling abroad.
With more cost-effective methods now available, make sure you're not spending money unnecessarily on exchange rates, transaction fees and transfer costs.
Stafford-Taylor says: "Prepaid currency cards allow you to load funds in advance at competitive exchange rates and can simply be used like debit cards when abroad without further transaction or exchange fees."
Although prepaid cards won't charge you for accessing your money when abroad, some cash machines might charge you a usage fee so it makes sense to pay restaurant and other bills with the money that is already on your card if possible. Many cards also have daily limits on withdrawals, which you should know in advance.
Beware of dynamic currency conversion
'Dynamic currency conversion' is jargon that refers to retailers, restaurants and bars that hit you with a poor exchange rate when you pay in sterling. Even exchange rates offered by uncompetitive UK banks are usually better than those offered by foreign retailers, so you should always opt to pay in local currency rather than allow the retailer to convert it into sterling for you.
But be careful - retailers sometimes automatically bill you in sterling without checking with you first, so you should ask to pay in the local currency.
Hickman says: "We did a survey a few months ago that found 42% of Brits are still falling victim to dynamic currency conversion. This charge is typically 4% of the value of the purchase but it's such a simple thing to avoid."
Insure your cash
If you opt to take hard cash with you rather than rely on prepaid cards or bank cards, it might be worth making sure you are properly covered in case something goes wrong.
According to research by GoCompare.com, the cover for cash offered under single-trip travel insurance policies has an average limit of about £250, so bear this in mind if you decide to travel with a huge wad of notes.
But there are other issues to consider, too. The excess on these claims is about £70 on average, and a number of policies encourage you to remove cover for your money by giving you a discount on your premiums.
Finally, remember the theft or loss of cash is usually covered only if you report it to the police within a certain timeframe; you report it to the hotel if that's where it went missing and the cash was on you or in a safe.
These restrictions are probably necessary – after all, the whole system would collapse if insurers had to pay out unlimited amounts every time someone lost (or said they lost) their money.
"If your cash has been locked in a safe or is stolen from your person, you can usually make a claim on most travel insurance policies but be sure to follow your insurer's claims procedure to the letter," said Caroline Lloyd, a travel insurance expert at GoCompare.
A debit card that works in the same way as a pay-as-you-go mobile: you top it up with cash and then use it just as you would a normal debit/credit card. Although some are badged Visa and MasterCard, pre-paid cards are not a credit card; you can only spend what you load. Prepaid cards are aimed at people who might not traditionally hold bank accounts – children, teenagers, people with poor credit ratings, migrant workers, and benefit claimants – and there are no credit checks on the applicant.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.
Issued by a bank as part of a current account and, in a nutshell, serves as electronic cash. Unlike a credit or charge card, where you get an interest-free period before you have to settle the bill, the funds spent on a debit card are withdrawn immediately from your current account. Unless you’ve arranged an overdraft, if you don’t have the cash in the account, you can’t spend it.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
The difference between two currencies; specifically how much one currency is worth relative to each other. For example, if £1 is worth $1.50, converting sterling to US dollars, the exchange rate is 1.5. Converting dollars to sterling at those levels, the exchange rate is 0.66, so $1 is worth 66p. There are a wide variety of factors that influence the exchange rate, such as a country’s interest rates, inflation, and the state of politics and the economy in that country.