If you are planning a holiday abroad this year and are confused about how best to go about organising your spending money, then join the club. Research by Consumer Focus last year showed that as much as £1bn a year was being made by exchange providers in fees, mainly because holidaymakers are confused about rates and charges.
In addition to this, Brits who chose to withdraw money from ATMs in foreign countries were also subjected to a significant loss. Sainsbury’s Travel Money estimate that around £14.2 billion was withdrawn on debit and credit cards abroad last year, costing the account holders £391 million in withdrawal fees alone. Added to this the typically poor exchange rate that is received at the ATMs and UK travellers really are getting a bum deal.
Some thought they had beaten the system by exchanging their money in the UK at a good rate and loading it onto a pre-paid debit card. However, not all pre-paid cards are the same, with many charging a fixed fee per withdrawal transaction, at an average of €1.80 per transaction. So how can you get your holiday money for less?
Five facts about spending money abroad every traveller can keep in mind:
- Credit cards are best value, if you get the right one
The right credit card will be the cheapest way to save money. A handful of credit cards are offered with zero withdrawal fees and no charges for spending. However, watch out for ‘loading’, where 3 per cent is added to the cost of the exchange. There are cards out there that do not load their exchange rate and will give you better exchanges than you’ll even get at the best bureaux de change. Make sure you can pay it back in full though – as soon as possible.
- Debit cards can be expensive
Some specialist cards can give a decent rate of exchange, but many don’t. Some debit cards have high fees associated with overseas use, which can add up to as much as £1.50 every time you spend on them. See what the deal is with your bank, and if they aren’t looking so rosy you can easily apply for bank account online with a new provider before you leave.
- Don’t exchange at the airport
Once you get to the airport, you’re a captive. This gives the exchanges here a license to inflate their fees and offer poor rates to desperate holidaymakers. If you have to get your money at the terminal, pre-order it to secure a more generous rate and pick it up on arrival.
- Don’t pay for your exchange with a credit card
If you’re buying currency, always use a debit card or withdraw cash. In the UK, credit cards charge a fee for ‘cash withdrawal’ and buying currency at an exchange is categorised thusly.
- Pay in the local currency when abroad
If a shopkeeper in Europe asks if you want to pay in Euros or Pounds, always opt to pay in Euros. This is because paying in pounds allows them to do the exchange themselves, and typically incurs a fixed charge and probably a less than generous exchange rate.