Personal finance writer Gemma Hughes shares her top tips for buying foreign currency.
1. Don’t buy too far in advance
If you buy currency a long way in advance you risk losing potential interest on it and gamble on how much the exchange rate may change before you travel. You may decide to have £100 or £200 in cash to use when you arrive in your destination, but you are better topping this up by using a cash machine than exchanging large sums. However keep in mind that not all debit or credit cards can be used abroad, and your bank or credit card provider may charge you a fee for taking money out overseas.
2. Keep spare foreign currency
If you travel a lot, especially within Europe or the United States, it is worth holding on to any leftover cash each time you travel so you don’t need to buy as much for your next trip.
3. Debit cards
When you need cash abroad, the cheapest, easiest and most flexible way to buy will most likely be with your debit card in a cash machine. You will usually be charged a fee (normally 1.5-2 per cent) and the exchange rate used will be ‘loaded’ against you by as much as 2.75 per cent. However it is still likely to work out cheaper than, or just as cheap as, buying cash from a bureau de change. It is also useful to note the minimum fee for cash withdrawals – it could be more cost effective to take out a larger sum at once than lots of small amounts. Be careful using your debit card for purchases as well, some banks now charge you each time you use your debit card to buy things abroad.
4. Credit card
If you don’t pay off the balance of your credit card every month, common sense will tell you to use it as little as possible. It is also not advisable to use your credit card to take money out from a cash machine as you will pay a ‘cash advance’ fee on this.
However, if you do pay off the balance on your credit card every month and as a result don’t accumulate substantial charges, there are benefits to using a credit card abroad. Firstly, you will get free credit until you need to pay off your balance, and secondly you will get a competitive exchange rate without extra commission charges.
Thirdly, you get additional consumer rights and protection. You are covered against the insolvency of a company that charges you for goods or services in advance, and under section 75 of the Consumer Credit Act if you buy something with a credit card abroad and it turns out to be faulty, (and you are unable to get a replacement) you can claim a refund from your credit card provider.
5. Currency cards
Currency cards are credited with a fixed amount of sterling or foreign currency before travelling, and are like electronic travellers’ cheques, although more flexible as you can use them to directly pay for goods in shops and restaurants or use them to withdraw money from cash machines. You usually have to pay a registration fee, but the idea behind the cards is to help you budget, by setting a fixed amount of spending money. They also protect against fraud, although no more than a credit or debit card.
As these currency cards can be topped up by friends and family in Britain, they could be very useful for younger travellers or those on a gap-year looking to have an emergency reserve.
Gemma Hughes writes on personal finance issues for and is a long term foster carer.