Paying by card in a café

Guide to Travel Money and Foreign Exchange

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If you're off on holiday, it pays to give your travel money some thought a week or two before setting off. If you don't, you risk throwing money away unnecessarily on fees, charges, commission and poor rates of exchange.

But with a little forward planning and careful consideration of your options, you can squeeze every last penny out of your budget and have a fantastic holiday.

The absolute worst thing you can do is leave it until the very last minute and end up changing your currency at the airport. The currency converters there know this is your measure of last resort, and charge a premium because you have no other option.

Instead, you need to start planning well in advance of your holiday, considering all the travel money options – from foreign exchange and travellers' cheques, to credit, debit and prepaid cards.

In this guide, we’ll be taking a look at the advantages and disadvantages of each to help you make your decision.

Watch out for commission

Some companies will charge commission for carrying out the foreign exchange. This will typically range from £1.25 to £3.00 and comes in three forms:

  • Minimum charges - which can be expensive if you’re only exchanging small amounts of money.
  • Flat fees - which can actually be good value because they don’t change, even if you’re exchanging large sums of money.
  • Handling fees – which are what the currency seller charges for its exchange services.

Some currency sellers advertise commission-free foreign exchange, but while this may sound like a good deal, be aware they could be making up for the loss of commission with higher exchange rates. As a result, this could actually be more expensive than if you'd just paid commission.

If you usually end up bringing back some leftover currency, it’s worth checking the buy-back rate too. If you can find a company that will buy back your currency for free, then you won’t have to pay out twice.

The main question you need to ask is this: how much currency will you get, after all the charges, in exchange for your pounds? Whichever currency converter gives you the most is the one to go with, as long as you bear buy-back rates in mind.

Keeping cash safe

Cash might be the most convenient way to pay when you’re abroad, but it’s also potentially the least secure. For this, and several other reasons, it’s vital that you have a good travel insurance policy that will cover the full amount of money you’re taking. If you don’t, your lost or stolen cash could be gone for good.

Next we’ll look at the best places to change your money, as well as travellers' cheques.

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