One of the dilemmas about going on holiday is what money to take with you. Is it best to play safe with travellers' cheques, or should you convert all your spending money into foreign currency before you go? With cash machines widespread at many resorts, do you need cash or travellers cheques anyway? And if you do want to take your spending power as cash, what's wrong with sterling?
What to Take
A seasoned traveller tends to take a little of everything - cash, foreign money, travellers cheques and cards - because things can, and do, go wrong. With the proliferation of cash machines, it is no longer necessary to take all your money in hard cash - but it makes sense to have some sterling with you for emergencies, including drinks and headphones on the flight, and a quick coffee break on the way home.
You need some foreign currency too, for when you first arrive. But you only need a little of each (sterling and foreign cash), as taking more means a greater loss if you fall victim to theft or you lose it whilst travelling.
You can't beat travellers' cheques when it comes to security, but they are more expensive because you usually pay commission when you buy them and when you cash them. But if they are lost or stolen you will get your money back - provided you keep the vital documentation separate from the cheques, making them an ideal back-up.
Debit and credit cards are good too. They are convenient, you can draw cash when you need it, and you often get a better exchange rate for purchases and cash withdrawals than you would from a foreign exchange bureau. But there is usually a 1.5 - 2.75% currency charge to pay too, and if you draw cash on a credit card, you pay interest from the day you get it until the day you pay it off.
How to get the best deal on your holiday money
The key to getting the best deal on your holiday money is to keep commissions and charges down. This means looking for the best deals and exchanging either cash or travellers' cheques as infrequently as possible. Minimum charges can make small exchanges costly.
Around 45% of UK holidaymakers never shop around for their foreign currency, according to financial information group Moneyfacts. So here is our guide to getting the best from your holiday spending.
Commission, handling fees and exchange rates
Many banks, travel agents, building societies and even the Post Office will be offering 'commission free' signs above their foreign currency desks at the moment. But it is important to check handling fees, delivery charges and exchange rates when deciding where to buy your currency.
For example, Nationwide Building Society and Alliance & Leicester have a handling charge of £3.50, while HSBC adds on £3.50 for those ordering their holiday funds over the internet. Lloyds TSB and Bank of Scotland add on a home delivery charge of £4.50 and £5 respectively.
Supermarket chain Tesco and high street store Marks and Spencer both also charge a £5 home delivery charge on consumers, although M&S waives the charge for those ordering £500 or more of foreign currency.
But buy your foreign currency and travellers cheques online with Onlinefx and get 0% commission on currency and travellers cheques plus free delivery (if you order your currency online and pay via a debit card - just type "free delivery" in the Promotion / ID box at payment stage). Order by 14:00 and your currency can be delivered to your home or work before 17:30 the next day.
Commission, handling fees and exchange rates
Next, check the exchange rate on offer. Those offering foreign currency all set their own rates. If the exchange rate is poor it can cancel out any savings made from opting for a provider that does not charge commission.
Click here to check the rates of Onlinefx. Also check the rates of Travelex and The Post Office, then compare them to those offered by your bank. Make sure you include any commission or delivery charges in the comparison.
Debit and Credit Cards
A storm of protest has erupted over charges for withdrawing money from cash points in the UK in recent months, but these charges are almost unavoidable in many overseas destinations.
Remember, it is not just cash withdrawals that incur charges when cards are used abroad. Banks and credit card providers will levy commission charges - also known as 'foreign currency loading fees' - which can be as high as 2.75% of the amount of a purchase.
Nationwide is the only UK debit card provider not to charge for overseas withdrawals. Liverpool Victoria and Saga credit cards do not have loading fees for purchases within Europe, and Nationwide makes no charge on purchases worldwide.
Be sure to check with your credit card provider how much they charge before relying on this plastic to keep you afloat. Also be careful where you withdraw cash in countries which are close to those bordering European countries using the euro. In Turkey, for example, many dispensers are euro-denominated. If a sterling traveller uses them to withdraw Turkish lira, he will pay two exchange loadings, because before issuing the cash, the money will be changed from sterling into euros, then into Turkish lira. Look for a sterling or local currency denominated machine.
With cash points on every street corner, travellers' cheques can seem old fashioned - especially to younger travellers. But they do provide peace of mind for the nervous holidaymaker. If they are lost or stolen the money is refunded with no questions asked.
As with foreign cash, banks can charge commission and handling fees, so shop around. HSBC, Alliance & Leicester, Royal Bank of Scotland, Woolwich and travel group Thomson all charge between 1% and 2% commission on travellers' cheques. And the same handling and delivery fees apply to travellers' cheques as those mentioned earlier for cash. (As mentioned above, Onlinefx are commission free, delivered free.)
Once on holiday, it is likely that you will face a second commission charge when cashing the cheques. American Express has a commission-free service, and those holidaying in the US will usually be able to use dollar-denominated travellers' cheques in the same they would cash.
When we travel we make sure we have some sterling (about £50), some foreign currency (£50 - £100), we use debit cards to draw cash and credit cards for purchases, and we take £150 worth of foreign currency travellers cheques in case of an emergency. We then either spend the travellers cheques in the last couple of days of the holiday, or keep them if they are in Euro's, because there's always a next trip!