Conal Gregory: Unfair exchange: holidaymakers left to count the cost of their foreign cash

HOLIDAYMAKERS may have decided to stay with their buckets and spades in Britain this year but many travel money providers are wreaking their vengeance on those who go abroad.

The austerity Budget and risk of unemployment have caused millions to follow the Prime Minister's example and stay in the UK to judge by last week's poor reports from Tui Travel (owner of Thomson Holidays), Disneyland Paris and Thomas Cook.

Buying foreign currency may appear to be straightforward but actual transactions bear little resemblance to the published exchange rates.

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Only a few years ago, bureaux de change – both independents and subsidiaries of banks and building societies – imposed commission fees. Now this transparent element has virtually disappeared to be replaced by far greater subterfuge.

Two-thirds of people mistakenly believe that by purchasing their travel money on the high street they can expect to receive the same rate in whatever branch they visit across the country. Providers may shout that they offer keen exchange rates but in practice that may be difficult to find.

The Post Office says it is the leading provider of travel money and aims to be competitive but where it comes up against localised competition, it "provides improved rates".

Since post offices are ex-directory, there is no way of checking if your local one is in that category. Similarly, Thomas Cook not only varies rates between shops – even within one town or city – but these can change during the day.

In a recent example, Thomas Cook offered six different South African rand rates in one city over an 80-minute period, varying from 9.96 to 10.84 to sterling, which is an amazing variation. This is to purchase but there will then be a sizeable gap for resale.

Probably the only national provider to be consistent is M&S Money, which is an HSBC subsidiary. At the time of the example above, it quoted 10.78 throughout the UK. With providers altering their rates geographically "so many families could be gambling on getting the best value this summer", says James Yerkess, M&S head of Travel Money.

The best rate is obtained online although this may bring a hidden scam. Since the purchase will almost certainly be effected using a debit card where the customer already has cleared funds, imagine the surprise to find a transaction fee – often 15 for 500 – imposed by some providers, notably Travelex, which makes it by far the most expensive way to obtain foreign currency. If you live too far from a fair priced bureau or it is inconvenient to call in person, some will provide the online rate post-free provided the transaction is of sufficient size.

Returning unused currency can be expensive in terms of the derisory rate. A few providers

have developed a scam to capitalise on this by offering almost useless insurance to "guarantee" to repurchase at the buy-back rate at the time of the initial transaction. The fee for this extra is likely to totally outweigh the benefit, such as 5 for returning 100.

With 69 per cent of holidaymakers buying foreign currency before travelling, travellers' cheques still have a place for the cautious, particularly as the money on them is not lost even if the cheques are stolen.

However, this protection has to be paid for by a commission, which is usually one per cent. Again, watch the exchange rates as online will be far better. Last Friday, the Post Office quoted e1.1805 online but 1.13 in branch.

Pre-paid money cards are far more flexible. The amount of foreign currency required is loaded before travel. Firms like BreadFX offer a far better exchange rate than available either in the high street or at the airport and there is no charge for the card. The saving is estimated at three to eight per cent.

Using a money card abroad is safer than cash and more convenient than a travellers' cheque. There is usually a redemption fee to cash back

into sterling, often 5. Watch though for the expiry date as replacement cards are not issued. Barclays says that credits remaining on their money cards are given to charity.

Using plastic to take cash out from an ATM abroad will usually result in a fixed fee (e1.50 in Europe) with only a few providers, notably the Bank of Ireland's platinum MasterCard issued in the UK by the Post Office, making no such charge.

The days of the first organised tours may date from 1841 when Thomas Cook arranged his first excursion: a rail journey from Leicester to a temperance meeting in Loughborough. The 500 passengers were conveyed a distance of 12 miles and back for one shilling. Today's holidaymakers may travel further but need to be on their guard to gain the best deals on their currency.

Conal Gregory is the Yorkshire Post's personal finance correspondent.