How to buy travel money

With the pound breaching €1.40 for the first time since 2007, this spring has seen surging interest in advance purchases of euros, especially in light of the most uncertain election in recent times.

According to the Post Office, euro sales in the first four months of 2015 were 28 per cent higher than in the same period last year.

Irrespective of the wisdom of buying currency ahead of this year's summer holidays - foreign exchange markets are notoriously difficult to predict - there are many alternatives to buying a wad of currency at your local bureau de change.

Andrew Hagger, personal finance expert at Moneycomms, says a lot of money can often be saved by planning ahead.

"The absolute worst thing you can do is to buy, or sell, currency at the airport," he said. According to the Post Office, however, this is exactly what 1.6m holidaymakers did last year.

Although there is often no commission for foreign currency exchange, the spreads offered by different providers can vary significantly from the "live" market rate.

According to comparison website Travelmoneymax.com, a £1,000 order placed on May 6 for collection in a week's time could buy between €1,288 and €1,342.

Mr Hagger says consumers can often find the most competitive high-street exchange rates at supermarkets rather than banks, with the likes of Sainsbury and Tesco usually among the "best buys".

Minimum orders of £5 typically apply for free delivery, and better rates are often offered for larger online transactions.

Andrew Brown, head of travel money at the Post Office, said that although most customers continue to collect their foreign currency from their local branch, there has been strong growth in the number ordering online to take advantage of better rates.

Some companies - such as Moneycorp and International Currency Exchange - offer online purchases that can be collected at their airport branches.

Those who exchange large amounts of cash well in advance are exposed to any fluctuations in exchange rates. While this can work both ways - the pound may get weaker or stronger - it is only a major risk where the currency purchased is at risk of a substantial devaluation.

iceplc.com

moneycorp.com/uk

Bob Atkinson, travel expert at Travelsupermarket.com, said while people often assume that using debit and credit cards abroad will give them the best exchange rate, many are ignorant of the "hidden charges" that are associated.

As well as non-sterling transaction fees on card purchases - which typically range between 2.75 and 2.99 per cent - consumers can also be landed with flat charges - normally £1 to £2 - irrespective of the value of the transaction.

Cash withdrawals normally also incur flat fees of £2 or so, on top of a percentage charge. Using a credit card to withdraw £100 overseas could, for example, therefore easily cost £107, plus any interest that may accrue.

"You don't see these charges at the point of taking cash out of the ATM, but only if you study your statement," said Mr Atkinson.

There are a few credit cards that don't charge for overseas usage. The Halifax "Clarity" card - like Santander's "zero" card, which is now closed to new applicants - enables zero-fee purchases and cash withdrawals worldwide.

A number of other credit cards charge nothing on purchases, but levy fees for using cashpoints. Providers include Lloyds, the Post Office, Saga and Nationwide.

The latter extends zero charges to global debit card transactions and withdrawals for its "FlexPlus" current account holders - who pay £10 a month - as does Norwich & Peterborough building society for its "Gold Classic" account holders who pay in £500 a month or hold £5,000.

Metro Bank, the challenger bank with branches in London and the Southeast, does not charge customers for card transactions within Europe.

A potential banana skin that all UK card users face is the invitation by vendors overseas to pay in either sterling or local currency.

Merchants have an incentive to offer "dynamic currency conversion", as the cost of converting a transaction to a cardholder's home currency is known, by card companies who offer less favourable exchange rates.

"Opting to pay in pounds is a big no-no," said Mr Atkinson. "You are going to get hammered by the retailer on currency loading, anything up to 5 per cent."

Mr Atkinson cautions travellers not to rely purely on their cards.

In many destinations - such as Greece - there can be widespread reluctance, particularly among small businesses, to accept cards because of charges they incur and delays they experience in receiving payment, he said. In others, such as Germany, many retailers will not accept credit or foreign debit cards.

"We would always advise taking a mix, including some cash," said Mr Brown.

halifax.co.uk/travel

metrobankonline.co.uk

Mr Hagger said that while travellers' cheques are still available to those who want them, pre-paid chip-and-pin cards are their modern equivalent.

Like travellers cheques, payment is required upfront, and transactions cannot exceed the amount of cash loaded on to the card. Although exchange rates are set by the card providers, they are, "in the main, a better deal than most debit and credit cards," said Mr Hagger.

There are two types of preloaded cards. Some are sterling-based and apply the relevant exchange rate at the point of use, others are currency specific and lock in an exchange rate at the point of purchase.

"Large numbers of people have been buying euro cards to take advantage of the exchange rate this past month or so," said Mr Hagger.

According to consumer website Moneyfacts, the two best prepaid euro cards - both of which charge no overseas transaction, exchange or withdrawal fees - are offered by My Travel Cash and Ukash.

While a few prepaid card providers, including FairFX, charge for cash withdrawals overseas, it is common for them to charge at UK cashpoints.

Watch out for miscellaneous charges; for setting up the card, for replacing it if lost, for not using it enough or for closing it. Ukash charges €12 for closing its euro card, for example; Mr Hagger says it is better just to keep the card open. Cards issued by Travelex and My Travel Cash incur inactivity fees after 12 months.

Prepaid cards are also not eligible for the Financial Services Compensation Scheme, meaning any balances are not protected against loss, although they should be held in segregated accounts.

ukash.com

mytravelcash.com

Multicurrency accounts are nothing new to many wealthy expats, for whom they allow money to be held in more than one currency but within a single account.

However these accounts, which are offered by Barclays and HSBC among others, often require large balances or regular inflows and can be relatively expensive to run.

In competition, a new breed of online multicurrency account was launched in February, designed to reduce the cost and time of moving money within Europe.

The service, called Ipagoo, allows customers to open and manage current accounts in different currencies, and to switch which is linked to their debit card at any time.

Ipagoo charges £10 a month to access up to three accounts, and like banks charges a spread on transfers between currencies. But it's not a bank - deposits are not protected under the FSCS, and it cannot make loans.

ipagoo.com

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