More and more of us are paying high prices to change our hard-earned cash into foreign currency at the last minute - but you don't have to pay the price at the bureau. This article will help you make the most of your money and will show you the cheapest ways to splash the cash abroad by examining foreign currency, plastic (credit cards and prepaid cards) and travellers cheques
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So has foreign currency been surpassed in favour of cards? The answer is generally, yes. If you have the right card you will almost certainly save money when compared to exchanging your Sterling for foreign currency. However, for some, any forms of cards, whether it is a credit card with charges or the new breed of prepaid cards, are off-putting and of course the wrong card can carry risks. Cash is also the easiest to use but, at the same time, is the easiest to lose or have stolen so don't take more than your travel insurance covers. In those cases, exchanging money is probably right for you – but still make sure you're getting the best deal.
Don't assume that a sign saying 'commission free' automatically means you're going to get a great rate. In actual fact you should be very wary of 'commission free' offers because the chances are that you will be offered a worse exchange rate than the bureau itself receives, allowing them to make profit that way. The only way to tell is to ask how many euros/dollars, etc, you will get in exchange for your pounds. Simple as that!
Some companies don't have commission charges – so if their exchange rate is competitive they are worth a look. However, don't rule out those that do charge commission, as their rates can still be more competitive.
Be wary however, of flat fees and minimum charges. Minimum charges make it difficult to change small amounts of money but flat fees can offer good value if you are changing larger sums of money. Watch out for handling fees too, which are normally about £3 but can be higher. Also consider your own bank or building society as they might have preferential rates for their account holders.
On the moneysupermarket.com forum we're often asked about who offers the best rates. As rates change constantly that's almost impossible to answer, and there's no one bureau that is consistently ahead of the rest.
Option two is the trusty travellers cheque, which is certainly one of the most secure methods of carrying your money abroad. Indeed that’s the overriding advantage of travellers cheques because as long as you make a note of the cheque number or make a photocopy (and don't lose that too!) you can travel with peace of mind.
The downside however, is that they're not always the cheapest way to carry your money abroad. In fact expenses can mount up as you are usually charged commission when you buy Sterling cheques and an exchange rate is applied when you exchange them into local currency. Once again, shopping around for the best deal becomes crucial.
With foreign currency travellers cheques those who think ahead, get ahead. Keep an eye on the exchange rate and look to transfer funds potentially well ahead of time. If you find a good rate, capitalise on it – and if you think the rate is going to drop further then why not play safe and change half your money? Also look out for good deals. Some providers may offer free commission, especially for students.
Deals that don't charge commission won't automatically be the best deals – you have to check their exchange rate and make sure it is competitive. Also be aware that when cashing in cheques abroad you are likely to face an additional charge (normally an extra couple of pounds) – so try and take your cheques in larger amounts, as it will cost the same to cash-in £100 as it will cost to cash-in £10.
As with foreign currency, exchange rates for foreign currency travellers cheques constantly change so shop around and take a thorough look at the market before deciding on the right option for you.
A lot of providers will have special travel credit cards purposefully targeting the frequent flyer with points and other loyalty rewards. Of course these bonuses are great but the fees and the interest rate should always be your first consideration if you intend to use your card abroad and also if you plan to borrow. With that in mind it's often a good idea to have a credit card just for using when overseas – and that can be paid off in full each month.
If you have a credit card then watch out for immediate interest charges, particularly for cash withdrawals. These incur interest when your balance is not repaid in full. In general it's best to avoid using a credit card to withdraw cash abroad, as you would at home.
Despite the potential charges, if you shop around there are some fantastic credit cards to use overseas which don't carry loading charges and have low ATM fees.
One of the crucial advantages of a credit card is that there are a host of cards with 0% on purchases for as much as 12 months. This will allow you to make purchases without being stung by interest charges - but do be wary to make sure you are not being hit with a loading fee, and make sure there are no restrictions on overseas purchases. Also, the majority of credit card providers will supply a free replacement card. So if you misplace your credit card or it is stolen, contact your credit card company and they will send you a replacement. This offers a level of security that simply isn't available with cash.
Post Office Classic – The Post Office Classic card is one of the leading credit cards to use at home and abroad with its typical rate of 14.9%APR. Where this card comes into its own for travellers however, is that it is commission free for use abroad. There is an introductory offer for purchases of 0% p.a. fixed for three months and an introductory offer for balance transfers of 0% p.a. fixed for eight months. In addition, there is a 24hr service available so if you do misplace your card whether at home or abroad you can call the emergency contact number and receive a replacement card for no charge.
Make sure you shop around to find the card with the best rates
Prepaid cards are the alternative way to pay abroad. The advantages of prepaid cards are numerous as they offer increased safety and, if you're buying online or on the phone and your card is used fraudulently you will be able to get your money back. Furthermore, there is no debt risk as you control the funds you place on the card, and prepaid cards are more accessible – you can get a prepaid card without having to worry about your credit history.
From a travel perspective, there are numerous advantages to prepaid cards. Safety is again a key feature because if you lose your prepaid card, you can contact your provider and they will cancel your lost or stolen card and issue a replacement. Additionally, depending on the provider, you can use a prepaid card worldwide and some providers will even offer 0% foreign exchange fees.
So what's the downside? Unfortunately, with prepaid cards being a relatively new phenomenon the market isn't too competitive just yet (though it is expanding). Consequently, there are still a lot of fees to be wary of such as card application fees, ATM withdrawal fees (which is often higher overseas) and charges for top-ups. However, more prepaid cards are emerging which drives these fees down, and, additionally, there are prepaid cards designed specifically for travel which limit overseas costs such as spending overseas, ATM withdrawals, etc.
It's also important to consider HOW you can top up. Some prepaid cards will only allow you to top up face-to-face, while others give you the chance to top-up face-to-face, on the phone or on the internet. When travelling it is crucial to think about how you can top up your card overseas - face-to-face is instantly ruled out and phone calls are often difficult to make, so look for a prepaid card that allows you top-up over the internet.
Again, take a complete look at the market before opting for the right card for you. Moneysupermarket.com now offers a prepaid card comparison tool, which will compare the best deals instantly.
Merchants and retailers overseas might offer you something called 'dynamic currency conversion'. This means they charge you in Sterling (or for overseas readers, whatever your currency may be) rather than the currency of the country you're travelling in. This can be convenient and gives you a familiar perspective of the price you're paying - but you will normally be hit with a higher exchange rate for this service so never use it and always CHECK before signing anything or entering your PIN - they might not always ask! So if you see a conversion, make sure you ask to be billed in the local currency.
So with all these alternatives what do we suggest you do? Well generally, we'd say opt for a credit card or travel currency card as your main source of travel money, when travelling abroad. Choose one that doesn't charge loading fees. Currently the Post Office comes out on top in the credit card category with no commission charge for use abroad. If you can't be bothered applying for a new card then do not use them for cash withdrawals unless you really need to. That is why we also suggest taking cash with you for small ticket items - such as buying drinks and for transport. Change your cash before you travel and be sure to shop around to get the best exchange rates. As a back up, for security, you might also consider travellers cheques and prepaid cards in case of emergencies. Good luck and enjoy your trip!
