Since the EU referendum, exchange rates have been something of a sore point for anyone looking to travel outside of the UK. Brits have become used to enjoying some fairly favourable exchange rates against currencies like the Euro and the Dollar. However, all of that changed when Britain decided to leave the EU and the value of the pound fell substantially. Today, we are still in a position where the pound is worth a lot less than it used to be in exchange terms – which is why it’s so important to make sure that you get the best possible exchange rates when travelling abroad.
Using credit cards overseas
Credit cards can be the cheapest way to spend when you’re overseas. Many believe that they consistently offer the best rates and the most low cost option for withdrawing cash abroad. However, this depends on ensuring that you have the right credit card. The ideal credit card for overseas spending is one with no non-sterling transaction fees on foreign spend and no charges or interest on ATM withdrawals. Whenever you’re overseas and spending with a credit card, look out for Dynamic Currency Conversion. This is where you’re given the option of paying in sterling abroad. It may seem like a good deal but the reality is that you’ll be charged about 5% more than the correct rate if you opt for it.
Exchange rates when you’re taking cash
There are a few locations where you’ll get a better deal on your cash currency if you buy this on arrival but, on the whole, it’s usually a much better idea to get your currency before you leave the UK. There are a number of different ways to get hold of cash for a trip abroad at a sound rate of exchange. For example, you could buy online with one of the big airport currency specialists, such as ICE, Moneycorp and Travelex. If you buy your money in advance and then collect it at the airport you’ll get a far better rate than if you purchase on your way through to departures. High street options can also be a great idea if you shop around. The Post Office is consistently rated as one of the cheapest ways to buy overseas currency and tends to have fairly strong rates, and you can also look at local travel agents to see what they offer. If you’re going to make comparisons then work from the same baseline question each time i.e. “how much sterling will EUR100 cost me?”
The option of travellers cheques
Although travellers cheques used to be the number one way to take money abroad, they are not that widely used now. In terms of convenience, the risk of loss and the average exchange rates they tend to be less appealing.
The benefits of prepaid cards
A prepaid card enables you to take your cash with you in a more secure way – loaded onto a prepaid card that can be blocked if lost or stolen. The rate of exchange you’ll get with prepaid cards varies but you can generally avoid paying any fees to withdraw cash using most of these cards. A lot of credit cards charge 2-3% fees on overseas transactions (although some don’t) and you can avoid these with a prepaid card too. It’s worth remembering that prepaid cards can’t be used as a surety when you arrive at a hotel or to rent a car, for example. You’ll need a regular credit card for that. There’s an element of reliability with prepaid cards that many find appealing – you’ll get the currency rate on the day that you convert your cash to the card. This can make it much easier to set, and stick to, a budget and also means that if things do change and the pound takes another dive then you won’t be affected while overseas.
The option of using a debit card abroad
Although it’s probably the card you’re most used to spending with, your debit card is generally viewed as a last resort because most banks tend to charge high fees to use debit cards overseas. This is not the case across the board so it’s worth checking whether your bank will charge you for using your debit card when you’re outside the UK. In particular, look at the potential costs for withdrawing cash from a local ATM. Some banks will charge an ATM fee every time you use a debit card overseas and another fee on top of that every time you spend.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley