Making the most of your travel money

With the pound slumping against many major currencies this year, not to mention the cost-of-living crisis, going on holiday abroad will be more expensive than ever this year. But many of us pay more than we need to when spending money abroad, due to expensive fees charged on our credit and debit cards, or exchange fees when switching currencies while travelling.

Making smart choices a few weeks in advance means that you can hold the right cards when you go abroad, making the most of every penny you spend. If you’re planning a high summer trip now is the time to get organised, and here is how to do it.

Get the lowdown on fees

Understanding how much you are being charged for spending abroad is complex, with many supposedly ‘free’ deals being anything but. You will need to look out for the following charges.

Fees on currency exchange

When you buy currency in notes from a bureau de change, bank, or Post Office, you may be charged the following.

This is the easiest fee to understand – a set or percentage rate levied by a travel money provider to convert your pounds into dollars, euros, dirham or whatever currency you might need. However, many providers no longer charge commission and make their money in other ways.

Tourist rate
This is a sneakier fee, which you will not be able to see. You will find that the rate you are offered at a Bureau de Change or bank is very different to the rate you see when you search for exchange rates online. Online you will see the ‘spot’ rate, which is the rate at which banks exchange currencies among themselves. You will get a tourist rate, which is less generous. This is how most currency providers make their money.

Fees on spending and cash withdrawal on cards abroad

There is huge diversity in the charges levied on spending abroad with your credit and debit card, as well as the amount charged if you take cash out of an ATM. Look out for the following.

Non-sterling transaction fee or currency conversion fee
If you make a purchase in a foreign currency you may be charged a transaction fee, usually as a percentage of the amount you have spent. This can average around three per cent of the amount you spend, so over a two week holiday it can really add up.

Cash withdrawal fee
This is a fee levied when you withdraw cash at a bank or ATM in a foreign currency, and can be £3 or more.

Better choices for spending abroad

Not all cards are created equally when it comes to spending abroad, so applying for a good one in advance will help you to avoid charges. Your choices include:

Specialist credit cards for spending abroad
Cards such as the Halifax Clarity card and the Barclays Rewards Visa do not have fees for withdrawing cash overseas or foreign exchange fees for spending. You also get the Mastercard or Visa rate conversion rate when you spend, which is as good as you will get.

However, if you take out cash on these credit cards, you will pay interest on that cash until you pay off the credit card bill at the end of the month, so the best way to use these cards is to spend on them rather than withdrawing cash. You should always make sure you pay off these credit card bills at the end of the month to avoid paying interest charges.

Specialist debit cards for spending abroad
Some debit cards are also excellent for spending abroad, but you’ll need to open a current account to get them. The Chase current account is new and also offers cashback, while Starling has a good debit card for spending abroad. Both have limits on the amount of cash you can withdraw per day abroad but should be enough for most holidaymakers. The Chase account has a waiting list at present.

Prepaid cards
If you don’t’ want a credit or debit card, another option is a prepaid card such as that offered by Revolut, which offers you the chance to load cash in advance, locking in a good rate before you go away.

The rates you get with Revolut are excellent, but you’ll pay a worse rate at weekends, and there’s a £5 delivery fee.

A final warning

Whichever card you use when spending abroad, there is one rule you must remember. When you use a card machine, it will usually ask you if you want to pay in pounds or in local currency. ALWAYS pick local currency if you have a good credit or debit card as mentioned above as the retailer’s own rate will always be worth than this.

If you are using your own card that is not good for spending abroad the decision is less clear-cut – but after reading this guide you should not be doing this, as you can rely on one of these better cards instead. Happy holidays!