Spending smart and making our money work harder for us is increasingly becoming something that people are more aware of
A few weeks ago, I wrote a Mirror column on the things you need to plan for when going on holiday.
Since then, I’ve had loads of enquiries from readers about holiday money: from how much to take to the most cost-effective way to spend while abroad.
Making your money go further is a major focus for millions of people. Our new Prime Minister has made the cost-of-living crisis his big focus. But spending smart and making our money work harder for us is increasingly becoming something that people are more aware of.
When you head out on holiday, the way you spend can save you a fortune. It’s been estimated that the average family of four, spending on a high-street bank credit card while on a week-long holiday would pay around £250 in fees, charges and poor currency conversion rates! That’s a room upgrade or a last day blowout!
Best of all, you don’t need to become a currency expert to do this. All you need to do is a little research before you go. If you’ve got five days before you travel you’ve got time to apply for some of the cards I’m going to mention in this article too. Here’s my guide.
Make a holiday budget
You might not be in the mood for a budget when you’re running round trying to squish in to that swimsuit from four years ago, while searching for the suitcase scales. But take a few minutes to sit down and work out what your ideal budget is for the holiday.
If you’re not at an all-inclusive resort, you’ll need to plan for meals, travel, essential costs (sun lounger hire), taxis and excursions. Oh, and a drink or three. Check out the many online travel guides and pick a couple of restaurants you like the sound of so you have an idea of prices.
Work out what your daily spend is likely to be and put an extra 25% of cash or credit to one side for emergencies. Which leads us to…
How much cash should I take?
Do you even need foreign currency anymore? Surely everyone takes cards? Well certainly in Western Europe, you’ll be able to rely on plastic. But many sectors – like small cafes, taxis, etc – prefer cash. Other countries are much more currency driven, so do a little research on plastic card acceptance at your destination.
So what’s the split? I’d suggest 20% cash and 80% on your debit or credit cards for the more ‘well-travelled’ destinations.
However, even popular countries like Greece or Turkey prefer cash in many venues and shops. So consider taking a 60/40 split between cards and currency for these destinations.
Travel debit cards and pre-paid cards
It’s by no means straightforward what the best way is to pay when spending on plastic. There are a huge range of options out there – some good, some very bad.
My personal favourite is the ‘travel debit card’. These are a little hard to get your head around at first – but once you’ve got your head around how they work, they’re fantastic.
Travel debit card companies aren’t banks. They link to your bank accounts and ‘draw down’ money when you pay through the travel debit card. But why use them? Well, when I researched this article, I found that some give the best all-round exchange rates available – often without fees. I use Currensea but there are other cards available.
Travel debit cards can also help you keep on top of your spending in real time on the app so you know exactly what you’re paying in pounds for that nice meal out. Some firms send you a daily summary of summary of your spending, in both the foreign currency and in pounds, so you can keep on top of your budget. It’s a good way to understand whether you are getting value for money when you spend €12 on a pint of lager.
Because the money doesn’t ‘live’ on the card, you don’t have to worry about the travel debit card company going bust. Plus you can ‘charge back’ cash if there’s a dispute over goods and services that you’ve paid for.
Using a credit card
There are credit cards designed specifically for regular travellers, that give you the most competitive exchange rates available on the day you spend. However, not all credit cards are the same so don’t assume that the one you have is the best option. In addition, bear in mind you could have a much higher APR rate than a standard credit card if you don’t pay your bill in full each month.
You can compare the best cards online but be aware that the application process, acceptance and delivery might take a few weeks. Other credit cards may have good rates but check what the fees are for using them abroad before you travel.
Credit card purchases are also covered by section 75 of the Consumer Credit Act if you spend over £100 on goods or services, which can be useful if you’re paying for flights or accommodation and you encounter a problem. This is because you can claim back the money from your card provider in the event of a dispute. Make sure you pay the card off immediately though or you’ll be hit with high interest.
Using a debit card
Paying by debit card – and withdrawing cash in particular – can be a pricy business abroad. Most of the main banks bill you all kinds of fees per transaction and the exchange rates are often poor.
For example, if you withdraw cash from an ATM in France and select ‘pounds’, you could face some or all of the following charges:
- A fee for using the machine.
- A currency conversion rate from the French bank to Euros.
- A currency conversion rate from your UK bank to Pounds.
- A fee for converting the currency.
- A fee for processing the transaction.
So try not to withdraw cash abroad – and never do this on your credit card as it tells the firm you are a bad credit risk.
However, many of the new online banks have travel friendly debit cards. The best ones don’t charge fees at all and the exchange rates can be reasonable too. You can apply online for the accounts easily right now. Then all you have to do is transfer over some cash. This is a good idea if you want to take a mix of travel money but have a card available too for spending so you’re not carrying a load of currency around with you.
Check on the bank’s website for things like ATM withdrawal charges, hidden fees and what exchange rate you’ll be charged on the day.
Buying foreign currency
Before you travel, check out comparison sites for the exchange rates for the currency you will be using, so you know you aren’t getting ripped off. Convert your cash budget in to the foreign currency, then you’ll also have a good idea of what to expect on holiday.
There are now loads of online ‘Bureau de Change’ that have great rates. MoneySavingExpert has a useful comparison tool that helps find the best rates near you. You can have the money posted to you as well. You’ll need to be in to sign for the cash – it won’t get left in a recycling bin like other things you order online!
Bear in mind that traditional bank and high street options don’t have particularly great rates, so don’t stick with what you know: shop around.
Don’t forget the golden rule!
Above all else, don’t buy currency at the airport! The rates are rubbish both for buying and selling currency. Anything else is better than airside!
- Martyn James is a leading consumer rights campaigner, TV and radio broadcaster and journalist
