- Buying holiday money at the airport can cost you 189 euros on every £1,000 purchased
- Beware ‘cash-like’ fees on credit cards and ‘non-sterling transaction fees’
- Adjusting your phone wallet settings before a holiday can help you avoid these
- Should you choose sterling or local currency for card transactions?
Laith Khalaf, head of investment analysis at AJ Bell, comments:
“The summer holidays are fast approaching, and for millions of people that will mean buying some euros, krona or lira and jetting off for a couple of weeks of sunshine. 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.”
- Hitting the bureau de change at the airport
“Probably the biggest faux pas you can make when buying foreign currency is to do so at the airport bureau de change, where currency rates are normally really poor. Somewhat bizarrely, if you order online in advance to pick up from the same place, you’ll get a much better rate. As at 3July, Travelex were offering to change £1,000 into 944 euros if you rocked up at their Heathrow airport kiosk. In other words, less than a one for one exchange rate. However, by ordering online from Travelex for pick up at the same location, you would get 1,133 euros. So for that £1,000 ordered, you’d get an extra 189 euros to spend on holiday, just from planning ahead a bit.
“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. The same principle applies to getting travel money from the post office, which is another popular choice. Individual post offices will usually have their own currency rates but if you order online beforehand, you’ll almost certainly get a better deal.”
- Paying for your online money with a credit card
“You still 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. We’re all probably used to this if withdrawing money from an ATM using a credit card, which is why no-one does it. But banks also often charge the same fee for ‘cash-like’ transactions, including buying holiday money. It’s extremely cheeky, because your bank isn’t actually converting your money into cash in this instance, the currency exchange provider is. However, it’s clearly best to avoid these charges by sticking to using a debit card when ordering holiday cash online.”
- Using your standard bank cards abroad
“Another common pitfall to watch out for is using your standard debit or credit card while on holiday. Standard debit and credit cards often levy ‘non-sterling transaction fees’ on transactions in foreign currencies, normally in the region of 2.5% to 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 already qualify for such accounts then you might avoid the fee, but you’ll still be subject to the bank’s currency conversion rate. The exchange rate you get from high street current accounts usually isn’t bad, but neither is it likely to be the best.
“If you regularly need holiday money, it might be worth getting a pre-paid card from the likes of Wise or Revolut, or setting up a bank account with low or no currency transaction fees, such as those from Monzo or Starling. These more tailored accounts are easy to manage via mobile app and usually have very good exchange rates as well as low, or in some cases, no fees. Some cards apply restrictions to how much you can use them so it’s worth doing your homework to find the one that suits you best. But once you’ve done this, you can then enjoy low currency fees and competitive rates on holiday every time you pay by card.
“Even then, some vigilance is required. It’s dead easy to load your new card into your iPhone or Android wallet, but then when you go to pay for something abroad, your standard high street bank card pops up before you know it. On the plane you might want to spend a few seconds in your phone wallet settings to make the card with the best exchange rates the default while you’re away.”
- Paying in sterling on a card terminal
“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 massively tempting to hit sterling, because that’s what’s sitting in your bank account, but that could be a big mistake. By hitting ‘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. That will probably mean you get a poor exchange rate. By hitting the local currency option, for instance ‘euros’ in Spain, the currency conversion is executed by your own card provider, and if you’ve sniffed out a competitive account for overseas transactions, then it will almost certainly mean you get a better exchange rate.”
- Buyback options
“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. Unfortunately, unless you have thought ahead, the rate you get probably won’t be pretty. Eurochange, for instance, will sell you 1,137 euros for £1,000, but if you bring all those euros back and exchange them again, you’ll only get £904 in return. That’s quite a hit.
“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. Eurochange charge £4 for their buyback promise and will only buy back a maximum of 30% of your holiday money on initial orders of no less than £150 and no more than £2,500. The more money you return with wanting to convert back into pounds, the more economical it is paying a small upfront charge to do so. But if you don’t return with any foreign currency, or only a little, that fixed charge does very little for you. It’s probably small enough not to worry about, though if you know you’ll get another opportunity to use any excess foreign currency in the not too distant future, it might be worth swerving the buyback and simply stashing the money away for your next holiday.”
