But with money tight for many this year, and the pound weak, it's more important than ever to find the most cost effective way of spending while on holiday.
How can you carry your cash overseas?
Historically, traveller's cheques were popular with holiday makers because they're safer to carry around than cash, but credit, debit and prepaid cards are now favoured: they offer both a secure and comparatively cheap way to spend while abroad.
That said costs do vary. For example, a €500 purchase would cost you £467.29 if you used a Post Office credit card but £493.59 - £26.30 more - if you paid with a Natwest debit card 1. So don't just grab the first card in your wallet to pay for that jug of Sangria next weekend. Before you jet off, check what fees your card providers will charge if you use your card abroad.
Plastic can be fantastic but...
... it can also be costly. There are a number of hidden fees and catches to watch out for including:
Cash withdrawal fees: Withdraw money from an overseas cash machine and your provider will add on a fee - typically around 2.5% of the amount withdrawn. This applies to debit and credit cards although make it a golden rule: Never use a credit card to withdraw cash from an ATM. Not only will you be charged a fee but you'll also probably be charged a higher rate of interest than that charged for purchases and that interest will be levied from the day the withdrawal is made.
Loading fees: Exchange rates change daily but most cards add a loading fee of between 2.5% and 3.0%. So for example £100 worth of US dollar spending with a loading fee of 2.75% would actually cost you £102.75.
Dynamic currency conversion: This is when a retailer offers to charge you in sterling rather than the local currency. ALWAYS opt to pay in the local currency as you will get a better exchange rate from MasterCard or Visa than you will from the retailer.
Purchase fees: These apply to debit cards only with several providers charging for every transaction you make while abroad.
If you're not careful these fees can easily rack up and your holiday spending could end up costing you far more than you bargained for. But there are a few cards which don't penalise you for overseas usage.
The Post Office Credit Card doesn't charge a loading fee, making it one of the best to use when you're on holiday. However, you should still avoid using the card to withdraw cash from an ATM as this will incur a 2.5% withdrawal fee and you will be charged interest at 24.1%, compared with the standard rate of 16.9% which applies to purchases.
If you've got a Nationwide Gold Card this is another good option to use on holiday this Easter as there are no overseas loading fees (although like Post Office, it does charge a 2.5% cash withdrawal fee). However, it will be less competitive if you'll be holidaying outside Europe this summer. From May 6 Nationwide is introducing a 0.84% loading fee. This will rise to 1% in July - although it's worth noting that this is still less than most providers charge.
The Thomas Cook credit card, which is one of the best at the moment because it doesn't charge a foreign loading fee, is also set to lose its shine. It's fine to use over the Easter break, but from April 18 customers will be charged a 2.5% loading fee and a 2.99% cash withdrawal charge.
Another option, if you're over 50, is Saga's credit card. There is no loading fee if you use the card in Europe but you'll be charged 1% elsewhere in the world.
In terms of debit cards there is only one outstanding option - the Nationwide Flex Account visa debit card, for which you'll need a Nationwide Flex Account. It doesn't charge a loading fee in Europe, is interest free and doesn't charge ATM fees. However, from June 1 it will charge 0.84% for worldwide spending, rising to 1% in July.
It's too late to apply for a new card if you're going away for Easter but it's worth thinking about whether your current debit and credit cards give you a good deal abroad. If they don't, apply for a new one before your next foreign holiday.
What about prepaid cards?
Prepaid cards are another option. They're relatively new here in the UK but they can be used instead of a credit or debit card and the advantage is you are not credit checked, so you can still get one even if your credit history isn't perfect. Also, because the provider doesn't have to run a credit check, you can literally just buy one so there's still time to take advantage even if you're going away for the Easter break.
They work in the same manner as pay-as-you-go phones in that you load money on to a card and that is how much you have to spend.
Prepaid cards, which are only available in Euros and US dollars, have a huge advantage over cash as if you lose your card most providers will replace them, with all funds intact, for a fee of around £10. However, not all prepaid cards are the same because there can be hidden charges and fees that you need to be aware of:
Application and replacement fees: Many providers charge you for taking out a prepaid card and you may have to pay another fee after 12 months to keep on using it.
Exchange rate: Most prepaid cards use the MasterCard/Visa rate which is unbeatable but some do use their own, less favourable, exchange rates - so check this before you buy.
Inactivity charges: Fail to use your card for a predetermined period and you could be charged for it. Similarly don't overload your card as most providers charge a fee to refund that cash.
Transaction fees: All prepaid cards charge for ATM use and some even charge a percentage or flat fee per transaction.
FairFX, which offers both a Dollar Currency Card and a Euro Currency Card, has some of the cheapest prepaid cards around with no charge on spending or foreign loading. There is also no top-up fee (top ups can be made by debit card or bank transfer). If you apply for this card through moneysupermarket.com you will not have to pay the £9.95 application fee. This fee is also waived if you load more than $20 or €10 onto the card at the time of purchase. The only charge is a withdrawal fee. This is a flat rate of $2 on the dollar card and €1.50 on the Euro card, so it is lower than most debit or credit cards.
Another leading provider is Caxtonfx, which offers three cards - the Eurocard, the Dollarcard and the Global Traveller Card. The Eurocard and Dollarcard include currency conversions at the time of loading, whereas the Global Traveller Card makes a currency conversion at the time of spending depending on where in the world you are. There are no loading fees for any of the cards and ATM charges vary - $3 with the Dollarcard, €2 with the Eurocard and no charge with the Global Traveller Card unless you're in the UK in which case it charges £1.50 per withdrawal.
Is it still worth taking cash?
Though you will generally get better rates of exchange with cards it's still worth taking some cash if only for small ticket items such as taxi fares, coffees, etc.
Always order your currency in advance though, as you'll get a much less competitive rate of exchange if you wait until you get to the airport or onto the ferry. You'll also probably be charged commission, but many providers offer fee-free currency if you buy in advance.
The best deals are to be had online. Travelex for example, has an online price guarantee and promises to beat other providers. There is no commission and you can arrange for your currency to be delivered to your home (although you will be charged £5.99 for this if your order is less than £500. It's free above £500). Alternatively, you can collect your money from the airport.
So which is the best travel money option?
There is no 'right' choice for everyone as each method of carrying travel money has advantages and disadvantages.
Generally however, credit cards offer the best rates as long as you steer clear of hidden charges and take out a card that is designed for overseas use. Also be careful if applying now because the changes that will be implemented to the Thomas Cook and Nationwide credit cards will make them less competitive over the summer holiday period.
To avoid unnecessary withdrawals however, it's well worth taking out a prepaid card and carrying some foreign cash too. Just make sure you shop around so you get the best rates available. For more options visit our travel money section.
1 Based on exchange rates on March 30, 2009.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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