As the holiday season kicks off, Brits heading overseas have a bewildering choice when it comes to which cards to use abroad, which currency to make transactions in, and where to get physical cash to take on holiday.
Laith Khalaf, head of investment analysis at AJ Bell, said: “In the flurry of pre-departure activity, it’s easy to lose sight of getting hold of some travel money, and that can often leave you rushing to convert your pounds at the last minute, probably getting a poor deal in the bargain.
“The puzzling array of currency rates and conversion charges levied doesn’t help. Despite being a simple transaction conducted annually by millions of people, getting the best deal is surprisingly difficult. But there are some obvious pitfalls to avoid, which can set you on the right track.”
Five holiday money rules you should stick to
- Don’t buy foreign currency at the airport
Probably the biggest mistake you can make when buying foreign currency is to do so at the airport bureau de change, where currency rates are normally poor.
However, if you order online in advance to pick up from the same place, you’ll get a much better rate.
According to AJ Bell, as of 3 July, Travelex was offering to change £1,000 into €944 at its Heathrow airport kiosk. However, by ordering online from Travelex for pick up at the same location, you would get €1,133. So for that £1,000 ordered, you’d get an extra €189 to spend on holiday, just from planning ahead a bit.
Khalaf said: “To be fair to Travelex, when contacted for their kiosk rates, they immediately disclosed a better deal was available online, so there’s really no excuse for missing this trick. Often you will need to order currency online a bit in advance; for instance, online Travelex orders need to be placed four hours before pick-up.
“That’s still not a huge amount of time and means you can even place an order on the day of departure. Effectively buying money at the airport is a hefty tax on your holiday for not planning ahead.”
- Don’t pay for your online money with a credit card
You need to be careful when ordering travel money online, too. That’s because if you pay by credit card, you’re likely to pay a substantial ‘cash fee’ to your bank.
This is the same fee we pay to withdraw money from an ATM using a credit card – but banks also often charge the same fee for ‘cash-like’ transactions, including buying holiday money.
- Check the fees if you use your normal bank card abroad
Another common pitfall to watch out for is using your standard debit or credit card while on holiday. Most debit and credit cards levy ‘non-sterling transaction fees’ on transactions in foreign currencies, normally in the region of 2.5-3% of the purchase amount.
Some current accounts won’t charge this fee, but they will usually come with monthly charges or minimum monthly deposits.
If you regularly need holiday money, it might be worth getting a prepaid card from Wise or Revolut, or setting up a bank account with low or no currency transaction fees, such as those from Monzo or Starling.
- Watch out for dynamic currency conversion
When you pay using your card overseas, you’ll normally be asked if you want to pay in the local currency or sterling. It’s tempting to hit ‘sterling’, because that’s what’s sitting in your bank account, but that could be a big mistake.
By choosing ‘sterling’ on the card terminal, or the ATM if you’re withdrawing cash, you’re essentially handing over the conversion process to the provider behind the ATM or card terminal. This is known as dynamic currency conversion and will usually mean you get a poor exchange rate.
By choosing the local currency option – euros, for example – the currency conversion is executed by your own card provider and will usually mean you get a better exchange rate.
- Check the buyback rates
The final travel money pitfall to avoid is when you get back from holiday. If you have unused foreign currency notes, you might be tempted to change them back into sterling.
But according to AJ Bell, the rates you will be offered will usually be pretty poor. Eurochange, for instance, will sell you €1,137 for £1,000, but if you bring all those euros back and exchange them again, you’ll only get £904 in return.
Khalaf said: “Some travel money providers will offer you a buyback promise, which guarantees they will buy currency back at the same rate they sold it to you. However, there will be a charge associated with this service, and often limits on how much you can exchange.”
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