MILLIONS of families will be thinking about their summer holiday, and sorting out spending money is a crucial step.
It’s important to work out how you’re going to pay for things sooner rather than later because it could save you cash.
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Choosing to pay in sterling on your debit or credit card when you’re on holiday could end up costing you much more than if you chose to pay in local currency.
This simple tip is often forgotten by holiday makers when settling the bill abroad.
Andrew Hagger, financial expert at Moneycomms.co.uk, said: “Always pay in the local currency when abroad- it’s much cheaper as you get the wholesale Visa or Mastercard exchange rate (depending on your card).
An exchange rate is how much your pounds will be worth in a foreign currency.
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Wholesale exchange rates are the foreign exchange rates used by banks and large corporations and they are often cheaper.
“If you opt to pay in Great British Pounds (GBP), the ATM or retailer will use a far less attractive local exchange rate, leaving you with less bang for your buck,” Andrew added.
“ATMs and retailers will make more money from each transaction if you pay in GBP – don’t let them plunder your holiday spending pot.”
It can be tempting to pay in pounds as it’s easier to see exactly how much you’re spending but you’ll get a better deal if you switch to the local currency.
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These fees can add up throughout a holiday, and you’ll end up with less money to spend on fun things like a cocktail or attraction tickets.
At the moment, using an ATM in Europe will get you around €116 for £100. This works out at €1.16 per £1 exchange rate.
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But if you choose to be debited in pounds, the exchange rate could be as low as €1.10 per £1 – giving you six Euros less.
If you chose to withdraw £250, for example, you’d get €15 less – the equivalent of £12.93 – if you chose sterling rather than using local currency.
This will double to £25.83 for £500 and increase to a whopping £51.73 for a £1,000.
You should also avoid using your credit card abroad if possible as interest rates if possible as you’re unlikely to get the best rates.
Are there other options to for spending abroad?
There are several specialist cards that can give you a great exchange rate.
These cards include travel credit cards and pre-paid cards which can let you pay abroad without fees or at a set exchange rate.
Senior Consumer Reporter Olivia Marshall explains all the options.
Travel credit cards: Travel credit cards allow you to spend money abroad without being hit by any fees or hidden charges.
But, they may still charge you for taking cash out.
We recommend the Halifax’s Clarity Card as it won’t charge you for using it abroad, nor are there any fees for withdrawing cash.
But you will be charged interest if you don’t repay your balance in full at a rate of 19.9 per cent.
And you will be charged interest on cash withdrawals until your balance is paid off too, at a rate of between 19.9 and 27.95 per cent depending on your credit score.
In other words, just because you are using plastic abroad doesn’t mean you don’t have to pay these credit cards off like you normally would.
Always pay off your balance before the end of the month with these cards to make sure that any money you saved isn’t wiped away by paying interest.
For more on travel credit cards you can read our guide here.
Pre-paid cards: An alternative to carrying cash around is to get a pre-paid card.
These cards allow you to put a set amount of cash on the card at a fixed exchange rate.
So if the rate is good at the moment, you can put money on your card and it will stay that rate when you are on holiday.
Just keep in mind that these cards can sometimes have hidden costs and charges so be sure to read the small print.
Wherever you’re heading off to, the exchange rate you get depends on the strength of the pound at the time.
If a currency is strong that means that it is worth a lot compared to other currencies and therefore has a higher value when exchanging for foreign currency.
A currency is weak if it is lower in value than other foreign currencies and gives you a poorer value when you exchange it.
Whichever way you prefer to spend when abroad – whether by cash or card – some simple swaps could mean you get a lot more bang for your holiday buck.
We have rounded up his best tips to make your money go further this summer.
Buy ahead
Buying your foreign currency ahead of when you travel means you can search around for the best rates.
Don’t buy cash at the airport on the day – these are usually among the worst rates around.
You’ll more often than not be able to get better rates at other places if you plan ahead.
Airport exchange desk rates are generally higher as they have a captive market among those changing cash last minute and don’t need to be competitive.
Use comparison sites
Compare travel money companies online, including the rates and any fees to find the best deal.
Factor in delivery costs and choose the option that gives you the most cash to spend on holiday.
If you have left it too late you might still be able to order online for collection at the airport.
Use comparison tools like MoneySavingExpert’s TravelMoneyMax, which enables you to compare pick-up and pre-order rates.
Avoid using your credit card
Don’t pay for travel money with a credit card – it’s likely you’ll be charged a cash withdrawal fee which adds to the cost.
You could also be charged a higher interest rate of this type of transaction if you don’t pay off the bill each month.
You should also avoid using your credit card abroad if possible, as you’re unlikely to get the best exchange rate unless you have one that offers the best rates for foreign travel.
You might also be charged a fee for using your card abroad, either to pay or for making a withdrawal.
If you do plan on using your credit card abroad, for example for a large purchase to get extra buyer protection with section 75, then check the fess in the T&Cs first to avoid any surprises later on.
Lock in current rates
If you want the convenience of using a card instead of cash abroad, you can lock in the current rate by topping up a prepaid card now.
Choose your card and read the T&Cs carefully as some apply hefty fees.
If you’re happy to take whatever rates are available at the time you travel then choose a debit card that offers good rates and no fees.
Best fee-free cards right now are Starling Bank or Chase’s debit card, which have no spending or ATM fees.
Avoid currency switch
Always choose to pay in the local currency rather than sterling.
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When you pay by card, you may be offered the option to switch currency and pay in pounds.
But this could leave you paying for sneaky exchange fees, so always choose the local currency.
What should you look for in a good travel insurance policy?
TRAVEL insurance policies can vary a great deal, but here are some “must have
- Medical expenses – A good policy will give cover of £1million or more for travel in Europe and £2million or more for the USA
- Repatriation service – The costs of getting you back to the UK for medical reasons should be covered automatically by your policy
- Cancellation and curtailment – A good policy will cover you for £2,000 or more if you have to cancel or shorten your holiday
- Missed departure – Covers additional accommodation costs and travel expenses up to £500 or more if you miss your flight due to circumstances out of your control
- Delay – You’ll usually be covered for £250 or more if your travel plans are delayed due to circumstances out of your control
- Baggage cover – Covers you if your baggage is lost, damaged or stolen. Look for policies that have cover of £1,500 or more.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected].
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