Travel money guide

To be prepared for all eventualities when spending abroad, try to take a mix of sterling, local currency (where possible), travellers’ cheques and debit or credit cards. However, if you want to set a budget for your holiday spending, pre-paid cards (where you buy a card that is loaded up with a certain amount of foreign currency in advance) can be useful and will limit your spending on credit cards.

Remember to check on the preferred methods of payment and currency at your destination before you go. US dollars and US travellers’ cheques may be preferred to sterling or Euros in some countries. Not all countries accept plastic to the same extent as in the UK and the US, and some European shops do not have card terminals, so it may help to take some sterling or local currency. The more exotic the destination, the less likely it is to cater for credit or debit cards from your current account, so always research your destination before travelling.

Changing travel money

You can often buy travel money commission-free in high street banks, shops and the Post Office (among other places). But bear in mind that ‘commission free’ doesn’t mean ‘cost-free’, as these providers make their profit on the difference between their buying and selling rates.

Some providers will send foreign currency via registered post to your home or you may be able to collect it at a local branch. The terms for home delivery vary, but expect to pay around £5 for orders of less than £500.

Travellers’ cheques

Travellers’ cheques provide a level of security that may still appeal when spending abroad – especially in some parts of the world. Providing you have kept a note of the cheque numbers, you can obtain replacements if your cheques are lost or stolen.

You do not normally have to pay commission on foreign currency travellers’ cheques, whereas sterling travellers’ cheques usually have a 1% commission charge. However, you will usually be charged commission of typically 2-3% when you cash them in abroad.

If you are going to a Euro-zone country, you will want Euro denominated cheques, and similarly if you are going to the US or Caribbean, they should be in US dollars. If you are travelling elsewhere, check whether US dollar, sterling or Euro-denominated cheques are preferred.

Try to avoid using a credit card to buy travellers’ cheques because the transaction will be treated as if you had made a cash withdrawal, with a 1.5% cash advance charge and interest that will be calculated from the day of purchase.

Alternatives to the bureau de change

If you leave your travel money purchase to the last minute, the chances are you’ll be forced to use the bureau de change located at the airport or train station, which can be expensive.

However, there are some Euro ATMs that don’t charge commission and offer better exchange rates for spending abroad than some bureaux de change.

Pre-paid cards

Pre-paid cards are helpful because they can be loaded up with travel money before you travel, and used at cash machines like a debit or credit card to withdraw cash. At present you can get them denominated in Sterling, Euros or US Dollars but not all providers offer all three choices.

The advantage pre-paid cards have over credit or debit cards is that a fraudster can only take as much money as is loaded onto the card and no more. Additionally, it will help you to manage your spending: so long as you have carefully planned your itinerary in advance of your trip.

The typical charge for using these cards to withdraw cash from an ATM is around 2% with a minimum charge of £1.50 to £2. Many will also make a charge when you load money on to the card. But remember there will be no additional conversion charge when you use them in the Euro-zone or the US if the card is pre-loaded with Euros or US dollars.

Using debit or credit cards abroad

If you want to make purchases or withdraw cash for spending abroad from a foreign ATM, the best method (other than a pre-paid card holding the currency you need) is to use one of the debit or credit cards that don't charge a foreign exchange fee. Additionally some won’t charge a foreign cash withdrawal fee. Most debit and credit cards charge a fee that can range from £2.50 to £6.00 depending on how much money you spend or withdraw, so be careful and always check the terms of your card before you travel.

Dynamic currency conversion

Watch out for ‘dynamic currency conversion’, and always check the credit card slip before signing or entering your PIN to make sure that you are being charged in the local currency and not sterling.

If the retailer has already converted your purchase into sterling, it will have done so at its own (highly unfavourable) exchange rate, but you won't know what this is until you receive your statement. This is known as ‘dynamic currency conversion’ could cost you as much as 7%.

Even if you were to use a card that normally carries no foreign exchange loading, dynamic currency conversion will override this. So always insist on paying in the local currency. If you fall victim to this practice, be sure to report it to your credit card provider which can take action against the retailer.

The exchange rates utilised by credit and debit cards are generally more favourable than an individual could obtain on the same date.

Top tips for spending abroad

• Take a second to consider the options, there are plenty of methods of spending abroad – but they all suit different situations.
• Research your destination. It may not have many ATM’s, or travellers’ cheques might be a better idea.
• Beware of dynamic currency conversion.

Our travel money guide addresses the worst possibilities, but don’t get daunted. With a bit of preparation your trip should run smoothly. And of course, don't forget to purchase the right travel insurance for your trip before you go.