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Foreign currency & foreign exchange

Foreign currency & foreign exchange explained

Victoria Russell
Written by  Victoria Russell
5 min read
Updated: 19 Feb 2024

There are many ways of handling your finances while travelling abroad so make sure you get the most out of your travel money

What is an exchange rate?

At the heart of foreign spending is the exchange rate, a figure that determines how much one currency is worth in terms of another. A favorable exchange rate means your money goes further, allowing you to enjoy more of what your destination has to offer. However, exchange rates aren't static; they fluctuate based on a myriad of factors, including a country's economic health and policy changes by its central bank.

Couple using a foreign exchange machine at an airport

Factors influencing flexible exchange rates

Exchange rates can be as unpredictable as the weather, swayed by:

  • The whims of foreign exchange markets

  • The speculations of currency traders

  • National interest rates

  • The country's debt levels

Understanding these influences can help you time your currency exchange for optimal value.

The power of a strong home currency

If your currency is valued highly, you can purchase a holiday for less as well as minimise any spending while you’re overseas. This is because your money is worth more than the currency of your travel destination, so you essentially buy more with less, benefiting from the best currency exchange rates. To get the best deals, compare exchange rates with the MoneySuperMarket comparison tool – the earlier you purchase your travel money, the less likely you’ll be stuck with an uncompetitive deal.

The rise of online travel money

Gone are the days when the only option was to queue at a bank or exchange bureau. Today, savvy travelers are turning to online comparisons for competitive rates that often surpass those found on the high street. The convenience of ordering from the comfort of your home, coupled with the option for home delivery or local pickup, makes this a no-brainer for many. Some companies even offer a price promise, refunding the difference if the market rate improves after you buy.

What charges can you expect?

When buying travel money, keep an eye out for:

  • Commission charges baked into the exchange rate

  • Dynamic conversion charges when opting to pay in sterling overseas

  • Cash advance fees for credit card currency purchases

  • Daily interest charges for credit card users

  • Transaction fees on credit card purchases

  • ATM withdrawal charges with certain cards

  • Delivery charges for online orders

The convenience of credit cards

Using credit cards is a safe and convenient way of making purchases on holiday. Credit cards give the holder access to a line of credit from a lender with a credit limit in place. If you find the right credit card, it can be a more cost-effective way of converting currencies than travellers’ cheques or foreign exchange.

The appeal of prepaid cards

Prepaid cards are topped-up for a spending allowance beforehand. They function similarly to credit cards but without the risk of ATM charges. The exchange rate is locked in when you load the card, protecting you from market fluctuations. Topping up is easy, with options like bank transfer, online platforms, or even a quick text message.

The safety of travellers' cheques

Although their popularity has waned, travellers' cheques remain a secure method for carrying money. They come pre-printed and pre-paid, with your signature and a fixed amount. While they do incur commission fees and are not universally accepted, they offer peace of mind with the promise of replacement if lost or stolen.

Compare travel money

Planning your travel finances can alleviate much of the stress associated with holiday spending. Credit cards are practical for overseas purchases, but it's important to weigh the options. You can compare travel money by answering a few questions about your finances and preferences and we’ll provide you with a tailored list of options for you to benefit from. So to find the perfect travel credit card, see what our comparison tool has to offer.

And when it comes to getting the most bang for your buck, don't forget to check out the best rates for euros, dollars, or any other currency you might need. Whether you’re looking for the best euro rate or US dollar, you can also find the best exchange rates online. Simply compare exchange rates with MoneySuperMarket’s currency comparison service online to find the best currency exchange on offer to date.

Traveling is about creating memories, not fretting over financial details. With a little foresight and the right tools at your disposal, you can ensure that your money is spent on experiences, not fees. Bon voyage!

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