Martin Lewis: just because exchange rate is strong doesn’t mean holidaymakers will gain

The pound’s up 14 per cent on last year at $1.70, a five-year high. It’s also at an 18-mth high against the euro, at 1.25 euros - 10 per cent up on last summer.

The boost’s because the Bank of England’s signalled interest rates could rise sooner, which boosts the demand for pounds.

Yet just because the rate is strong doesn’t mean you’ll gain. Here’s what you need to know.

1.Warning - most people waste big money on foreign money. 

Ultimately, when abroad you only want to pay for what you buy, yet by doing it the wrong way many also pay for paying too. So every penny wasted is painful. 

To show you the impact here’s how much 1,000 euros spending costs you (rates move daily so these were all done on one day several weeks ago).
- Spend using specialist credit card: £800 (see point 2)
- Via UK’s cheapest bureau (London ‘pick up only’ rate): £804 (see point 5)
- Change money at the Post Office: £829 
- Spend on debit card from hell (40 transactions): £882 (see point 4)
- Change at airport (Heathrow T1 Travelex, not pre-ordered): £890 (see point 9) 
The differences are massive, and luckily the cheapest way is also the easiest…

2.Easy way to get the BEST rates, every time, in every country. 

Most credit and debit cards add a 3 per cent load when you spend abroad; so spend £100 of euros and it costs £103. Yet a few specialist, no annual fee, credit cards are load-free worldwide, so it only costs you £100. 
This is the same near-perfect rate the banks get, smashing everything else, including top bureaux de change. Yet to make this work, ensure you always repay IN FULL, preferably by direct debit, or the interest cost dwarfs any gain you get from the better rate.
The top pick is the Halifax card, as it has the lowest overseas charges. Yet other load free credit cards include Saga, Post Office, and Nationwide Select; if you already have one of those I would keep it. For a full card rundown see Money Saving Expert. Yet again do ensure you repay in full or they charge 12 – 20 per cent APR.

Do be aware though withdraw cash, and even if you repay IN FULL, eg, for Halifax it’s c£1 per £100 – that still beats most bureaux – but means it is better to spend on these cards than withdraw cash and spend that.

3.Top overseas card if you’ve poorer credit. The only way to know if you’ll be accepted is to apply, then they credit check, but that leaves a footprint on your file. So it’s worth finding out first which cards are most likely to accept you Money Saving Expert is a free tool which shows your odds for each card.

Within it is the Capital One Classic Extra, which accepts even some with year-old defaults or CCJs. It’s also load-free worldwide and pays 0.5 per cent cashback on all spending - a useful double purpose (provided you repay IN FULL each month, of course).
However, as it’s 34.9 per cent representative APR and you’ll be charged this (plus a fee) on cash withdrawals even if you fully repay, just use it for in-store spending rather than cash.

4.Debit cards can be the WORST way to spend abroad. If you have a Bank of Scotland, Halifax, Lloyds, Santander, TSB, and NatWest/RBS card, beware, they are my overseas Debit Cards from Hell. Not only do they add a load to exchange rates, and an ATM fee, they also charge up to £1.50 each time you spend. So £5 spending can cost you £6.65.
Any other card, including credit cards (if repaid IN FULL), is cheaper to spend on than these.

5.Get the best travel CASH rates in seconds. My TravelMoneyMax travel money comparison tool compares rates at about 40 online bureaux, and orders them by how much currency you’ll actually get, after all fees.

6.Top prepaid cards. Here, you load with cash before you travel, then use like a debit card. If you lose it, your cash is protected. You get the rate on the day you load/buy, not when you spend, so currency fluctuations may mean you get a worse deal (or better one). 

The best rates and fees combination is offered by www.ukash.com. – though unlike credit cards as these cards use their own exchange rates it can vary.

7.”Do you want to pay in pounds or euros?” - SAY EUROS. When paying on a card abroad, you’re often asked if you want the transaction to be in pounds or the local currency. As a general rule, never pay in pounds - that means the overseas store/bank is doing the conversion and rates are awful.

8.The cheapest DEBIT card abroad. I prefer cheap credit cards, as it’s a big schlep to change your entire bank just for cheap spending abroad, and if you are switching, there are better incentives out there.
Yet if that’s what you want, the Norwich & Peterborough Gold Classic current account is the only load-free worldwide debit card (Metro Bank added non-European loading in March), and it has no ATM fees either. You’ll need a min £5,000 in it, or pay in £500/mth or there’s a £5/mth fee.

9.DON’T change your cash at the airport (or at least order ahead). I know it’s easy, but it’s just such a waste. Airport and ferry port rates are usually dismal as they know you’re a captive customer. Far better to use TravelMoneyMax or, if you’ve left it too late, at least order in advance online to pick up once you’re at the airport to get better rates. 

10.Don’t pay for bureaux de change on a credit card.  Pay a UK bureau by credit (not debit) card and it counts as a cash withdrawal, so there’s a fee and interest on these payments even if you fully repay.