The value of the pound has been sinking fast. Since the start of the year sterling has slumped by 25 per cent against the US dollar, from $1.35 to $1.05. The fall is exactly the same against the other currencies that are locked to the US dollar, including UAE dirhams and the currencies of many Caribbean islands.
The pound has also lost ground against the euro and almost all other currencies, so it is essential to avoid further losses by managing your holiday finances well. If you leave holiday money to the last moment and change cash at the airport on your way out, you will throw away cash that would be much better spent at your destination.
Paying with a card – either physical or on your phone
The Covid-19 pandemic has accelerated the move towards plastic payments abroad, very often contactless. In an age when cards are used for the most minor transactions, it is important to know how much your issuer will change for use abroad.
Be aware that card issuers typically impose an “exchange-rate loading” charge of up to 3 per cent of a transaction made abroad. Check your card provider’s policy, and if necessary get a new card specifically for overseas use.
Smaller-value transactions are covered by the voluntary “chargeback” arrangements provided by Mastercard and Visa, which also apply to debit cards.
The Halifax Clarity credit card is the most mainstream card that does not add a transaction fee. The Revolut and Monzo cards offer online banking with physical cards and exceptionally good exchange rate policies, as well as a certain amount of cash withdrawals abroad. Starling and Metro Bank also offer fee-free foreign transactions.
Credit cards are generally better than debit cards. UK-issued cards are covered by Section 75 of the Consumer Credit Act 1974, which makes the card provider jointly liable with the merchant for any purchases over £100. That means the goods must be of reasonable quality. You are also protected against financial failure of a travel provider, whether an airline, tour operator or hotel.
Most debit cards are best regarded as a backstop, as they typically add a flat transaction fee (around £1.25) to the foreign exchange levy. Settle a €30 lunch bill with a debit card and you will pay £2 in card charges.
British consumers have got used to the broad rule that paying by credit card should not cost more than paying by cash. In fact, some nations have their own laws, such as Denmark (where foreign credit-card holders routinely pay a surcharge) and Australia (where hotels add an extra percentage).
Beware of dynamic currency conversion
“Would you like to pay in sterling?” the waiter asks innocently. He is hoping that you will choose pounds, thereby boosting the restaurant’s profits. Dynamic Currency Conversion (DCC) means the merchant and a bank give you a terrible rate of exchange and split the profit – typically a margin of 5 to 6 per cent – between them.
Restaurants, shops and hotels are allowed to offer the “opportunity” so long as they make it clear that the cardholder has a choice, and cite the rate of exchange that will be used.
The EU-funded European Consumer Organisation, known as BEUC, adds: “It is almost impossible for a consumer to make an informed decision when presented with the DCC option, because of various ‘nudging’ strategies put in place by the DCC service providers and merchants.”
Always choose to pay with local currency, not “GBP”.
Watch out for the “hold” on a credit card
All kinds of enterprises, from car-rental firms to hoteliers concerned about their minibar, demand a credit card. Without one, you might be asked for a hefty cash deposit – or simply refused service. This is because the firm wants some comeback, and to reserve the right to extract additional funds.
If, after you have checked in the car or checked out of the hotel, they find that you have run up a charge, they want to claim it back – and the easiest way to do that is to demand “pre-authorisation” up to a certain amount.
They will exercise a “hold”, which means reserving a chunk of capacity – perhaps as much as £1,000 – from your account for contingencies.
This money will not leave your account (unless there has been some tomfoolery on your part), but it does limit your finance-related freedom.
Pre-paid cards
These are cards which you load with currency – usually sterling, euros or dollars – and use to pay for goods and services, or to withdraw cash from ATMs. On longer trips, you can keep topping them up online from your bank account, making them good for globetrotting tourists and gap-year adventurers. But do your homework.
- The key components you need to compare start with the initial fee. Some providers waive this, but often make up for it with higher charges elsewhere. Paying a fee now may actually save you more in the longer term.
- Next, do you have to pay a “loading” fee to put money on the card? If so, this could prove expensive. Some companies demand 3 per cent of all the money you put on your account.
- Is there a flat rate or a percentage charge for using the thing?
- Lastly, how quickly do your funds erode if you don’t use the card for a while? I suspect a very useful income stream for prepaid card issuers is the depletion of value over time – and the many cards that travellers have simply forgotten about.
Cash has many advantages
Obtaining local currency locks you into an exchange rate, and therefore can calculate precisely how much a cup of coffee or a night’s stay costs in sterling. Cash also says less about you than plastic, eliminating the risk of credit-card fraud.
Many people use their credit or debit cards to withdraw cash abroad. But on top of any fees added by your card provider, many operators of ATMs abroad charge Direct Access Fee (DAF). Providing a fully stocked ATM on a Greek island, with all the security and maintenance issues involved, is an expensive business, they point out – and the transaction fee reflects this reality.
So buying ahead of your trip is a good plan. Foreign currency is the ultimate commodity: the euros or dollars you get cheap from a backstreet bureau de change are worth exactly the same as the notes you buy, expensively, at your high street bank. But the only way sensibly to compare rates is to ask the right question.
On your local high street, don’t expect much from banks – which now appear to regard changing money as a faff, and often restrict it to existing customers (and give them a lousy rate).
Travel agents usually offer a better deal. And the Post Office is worth checking. But you are almost certain to get a better deal if you shop around online through companies such as Travelex and Moneycorp, and pick up the foreign currency at an airport or ferry port.
For the best deals, it helps to be in London. Seach Thomas Exchange Global for some of the best rates. You can pay online and pick up the cash at a Thomas Exchange office.
Better still, take a stroll along Britain’s finest foreign-currency artery: Queensway in London W2. Within a few hundred yards, there are two dozen bureaux de change. It takes 10 minutes to compare rates, and with lots of tourists selling euros or dollars for sterling, there’s a willingness to turn a quick profit.
All of this applies only to the “big” currencies: the euro and dollar, and also the Swiss franc, Canadian and Australian dollars. You might also want to buy in advance for Scandinavian currencies or New Zealand dollars (weak competition at the destination means rates are rarely good).
But just about every other currency counts as “exotic”, and for these the rule is: wait until you get to the country in question.
Currency for Croatia
Unlike Greece, Italy, Spain, Portugal and other Mediterranean countries, Croatia does not use the euro. Its currency remains the kuna. That means the usual advice for European holidays – buy euros in the UK at the best rate you can find – does not apply to the Adriatic nation.
First rule: do not change kuna in large quantities in Britain; you will get a much worse rate than in Croatia. Take clean Bank of England £20 notes (with a few £5 and £10 notes in case you need to change smaller amounts towards the end of your stay).
If you like to have a modest amount of foreign currency for incidentals when you arrive, then I suggest to go to your local post office and change £20 or so into Croatian kuna. You won’t get a great rate of exchange, but it will be better than your departure airport. And it is commission-free, which is handy for small transactions like this.
I prefer to wait until I reach the arrival airport in Croatia and change some sterling there – though only a small amount. Once you reach your final destination, you will soon be able to identify the bureau de change (known locally as mjenjačnica) with the best rates for sterling. Even in small towns, there are change opportunities; ask at the tourist office or a travel agency.
When you shop around, note that some places charge commission and some don’t, the sensible question to compare rates is: “How many kuna will you give me for £100?”
Keener rates are available for euros – to which the kuna is pegged – than pounds. So if you have some spare euros and do not intend to go to a euro country soon then you might as well bring them. But don’t change sterling into euros and then into Croatian kuna; you pay two margins in the process.
Turkish currency
Due to the extraordinary economic policies being pursued by the Turkish president, the lira has collapsed relative to most other currencies, including sterling. You now get more than twice as many lira for your pound as you did two years ago, and there is probably further for the Turkish currency to fall.
As above, do not get Turkish lira in large quantities in the UK; instead take clean Bank of England notes, and change reasonably small quantities in case there is another sudden collapse of the lira. Little and often is the best way.
