Holiday money

On this page: Credit & Debit Cards | Prepaid Cards | Cash | Traveller’s Cheques

However you pay for something abroad, you could almost certainly have found a cheaper way to pay, if only you had limitless time.  You have a choice of cash, travellers cheques (yes they still exist), debit cards, credit cards and prepaid cards. For the use of these you will be hit by charges levied per transaction, as a percentage of the transaction value, and less visibly, through exchange rate variations. And of course these charges vary depending on where you get the cash, cheques or cards from.

So if I were you I’d give up on trying to find the best deal; there are probably easier ways to cut your holiday costs, like stopping the kids watching videos on their mobile phones! On the other hand, you can save money effortlessly if you understand a little about how it all works.

CREDIT & DEBIT CARDS OVERSEAS

I recently lost my wallet and in the ensuing few days whilst I awaited for my cancelled cards to be replaced, I suddenly realised how little I normally use cash these days.

If you’re the same, you might want to change your payment methods whilst you’re on holiday because using your cards abroad can be expensive. Sometimes you will get some help with this, because in some places, you simply won’t be able to use anything but cash!

Cash withdrawal from ATM cashpoint machine

A great way to get cash but large withdrawals work out cheaper than small ones.

First things first – before you go abroad, it’s worth letting your card issuer know you are going! Some bank systems will automatically suspend a card if the use does not fit normal patterns and that can include use overseas. (Multiple transactions at the same place within a short time span can have the same effect: I used to work for a yacht operator that charged clients on arrival for extras, and for non refundable deposits. These were processed as two separate transactions, the second of which quite often caused cards to lock)!

The exchange rates used for credit and debit cards are set by the networks (Visa and Mastercard) and generally seem to be favourable compared to cash exchange rates from banks and foreign exchange counters in the UK.

Unfortunately there are charges:

    •  A Loading Fee (sometimes called an overseas commission charge) applies to all credit and debit card transactions, typically around 2.75%
    • A Purchase Fee applies to some debit cards only when you make purchases.
    • A Cash Withdrawal fee, (usually a percentage but with a minimum and maximum charge, eg 2%, minimum £1.75, maximum £5.00) if you are using your credit or debit card to withdraw cash rather than pay for goods or services.
    • ATM fees – as in the UK, there may be a charge for using some ATM machines
    • Interest charges for cash withdrawals on credit cards are usually applied from the transaction date and often at a higher rate than your normal APR.  So even if you pay off your balance in full each month you will still be hit. If you pay off in part only, cash transactions are usually the last type of spend the money is set against.  As if credit card charges weren’t high enough!!  There is a way to avoid these charges though, which is to put your account in credit before you go away.

So it helps to think about how you use your cards, especially for cash withdrawals where debit cards will generally work out cheaper than credit cards, and a few larger withdrawals will be cheaper than lots of smaller ones.

The charges also vary with the card issuer. As I write this in early March 2012, The Norwich and Peterborough Building Society currently offers a debit card with no overseas charges and the Metro bank claims to offer the same. Nationwide, previously the champion in this area, now makes some charges but remains cheaper than many others and includes free travel insurance.

Credit cards are a little harder to compare with one or two interesting schemes that make direct comparisons more difficult. Some cards make a monthly charge, whilst Nationwide offer no Loading fees for every £1 spent abroad that’s matched by £5 spent on the card in the UK. Some current front runners are cards from the Post Office, M&S, Nationwide, Saga, Halifax and Sainsburys.

It could be an expensive coffee if you pay by card in your home currency.

It could be an expensive coffee if you pay by card in your home currency.

One way of paying that sounds attractive but probably won’t work out that way, is Dynamic Currency Conversion (DCC) or Cardholder Preferred Currency (CPC), where a restaurant for example may offer you the chance to pay in Sterling.

You might imagine that this would mean no charges and that you would know exactly what you were spending but not so. Not only is an additional fee sometimes charged for this service but the exchange rates used are not those set by Visa/Mastercard.

The net result can be that the bill can work out several percent higher (5% would not be unusual) than if you had paid with the same card in the local currency, even after allowing for all the charges which that entails!

PREPAID CURRENCY / TRAVEL CARDS

Prepaid cards have grown in popularity as a way of reducing the high costs of credit and debit card usage. You pick either a card denominated in the currency you need (eg Euros) or a general card usable as a variety of currencies. The former will generally be easier and cheaper for most sailing holidays and has the advantage that you can check the exchange rates on offer as the currency conversion is done at the time you load the card (later top ups are possible at the rate prevailing in the day).

Exchange rates with the better prepaid cards are comparable with other cards but are not set by the Visa and Mastercard networks. This means you need to take the rates in to account alongside other charges. These can include:

  • An initial charge, sometimes called an issue or administration fee.  This may be refunded on to the card once you start using it.
  • A monthly charge
  • A Purchase fee
  • An ATM cash withdrawal fee
  • A reload fee for adding more funds.  Minimum reload amounts vary

Other incentives are sometimes on offer including cashback deals, no purchase fees for an initial period and payment protection (remember these are not credit cards so there is no Section 75 protection).

With a little care it shouldn’t be too hard to find a prepaid card that beats the average debit card for costs. As with credit cards, the varied charges make comparisons a little unreliable. One reputable comparison site currently lists two cards with equal charges. One is offering €10 cashback so is ranked above the other, even though the second card has a 1.5% better exchange rate. So if I were loading more than £570 (quite likely)! the second placed card will actually work out cheaper.

So as always, I’d suggest you check several comparison websites, particularly if it’s not clear how independent they are. However, some Euro cards that are currently amongst the front runners  are Fairfx, Caxtonfx, and Breadfx.

CASH

Sooner or later you will have to spend real money in the local currency! This is more the case in some places than others. Turkey for example does not have the number of cash machines that are found in the UK so if you’re in a remote bay with one restaurant your plastic is unlikely to get you far.

Nor these days is there much hunger for pound notes, dollar bills or euros outside the user countries. For example, the Turkish lira no longer depreciates faster than you can pick up your change from the counter, and the Turks have better things to stuff their mattresses with than wobbly western currency. They will take foreign currency but out in the sticks this will often be with the utmost reluctance for no other reason than they have no way of knowing the current exchange rate!

In my experience, the best deals for obtaining foreign currency are (starting with the best):

  1. In the destination country
  2. In the UK
  3. At any airport exchange desk, in the destination country
  4. At any airport exchange desk at the UK end!

Obviously that assumes you use a similar source – the rates you will get ordering on line in the UK will almost certainly beat those on offer in the  foyer of a posh hotel in resort. But you get the picture.

Personally as I often travel at short notice I rarely get around to ordering in the UK so a cash point on arrival (even at the airport) is my usual preference if I haven’t already got funds left from the last trip.  I usually also carry some UK cash as if stuck somewhere away from an ATM there is usually somewhere around to change it.

TRAVELLERS CHEQUES

Travellers cheques are usually my least preferred option but if you’re better organised than me they may be worth considering.  Order them in the currency of your destination (they’re available at post offices) and they’re often free though there may be a small charge by the bank or bureau de change when you cash them. They’re safe (but then so is keeping you money on a hole in the wall machine) and if you’ve any left over you can use them next trip.

The three drawbacks are that they are only readily available in more common currencies (Euro’s, Dollars, Yen etc), the places to cash them are only open when I want to be out sailing, and there aren’t as many places to change them as there are ATM’s.  In days of old, they were widely accepted in shops and restaurants but sadly this is now rare.