It’s always useful to take a small amount of cash with you when you go on holiday – after all, you might need to pay for a taxi as soon as you arrive or to buy some refreshments. Of course, while cash is the easiest to use, it’s also the easiest to be stolen, so make sure you have adequate travel insurance in place to ensure your money will be protected should you lose it.
The amount of foreign currency you get in return for your pounds and pence will depend on the exchange rate being offered by the convertor. The higher the exchange rate is, the more foreign currency you’ll get for your money (broadly speaking).
For example, if the US dollar exchange rate is 1.56, you’ll get $1.56 for your pound. If you convert £100, you’ll get $156, and so on. However, this simple arithmetic doesn’t take fees into account.
Often, foreign exchange companies will take a commission for converting your cash, which you need to factor in when working out if something’s a good deal. If, for example, you see a really competitive exchange rate, it might not be such good value if it comes with high commission charges.
Ideally, you want to find a company with low or no commission fees, but one that also offers a competitive rate. Be aware that some ‘commission-free’ deals mean that the rate of exchange you get is poor, so you need to take this into account. You should also look out for ‘handling fees’ (normally around £3, but can be higher) and minimum charges, particularly if you’re converting a relatively small sum.
Exchange rates change constantly, so it’s best to monitor them and strike while the iron is hot when you see a competitive rate, otherwise you’ll miss out. Don’t forget to check if your own bank or building society offers preferential rates for its own customers.
Beware dynamic currency conversion
If you use a credit card or a prepaid card loaded with Sterling for purchases while abroad, you need to watch out for dynamic currency conversion, which can cost you money.
When making a purchase abroad, the retailer may (or may not) ask you if you want to be billed in Sterling. This can be convenient because you can get a good feel for how much something is costing you and whether it represents good value, but this dynamic currency conversion comes at a price.
When paying via dynamic currency conversion, you’ll often be charged at a higher exchange rate for the privilege. This is a waste of money, so you should always check the bill carefully before signing anything or entering your PIN. The retailer may do this automatically, so always check and ask to billed in local currency.
What’s the best choice?
There’s obviously a degree of personal preference here, but it’s generally a good idea to take a credit card or prepaid card with you to use for your major spends, and then bring a small amount of foreign currency with you to pay for small ticket items such as refreshments and public transport, where using a card isn’t really an option.
Research Your Rate
The only way to know if you are getting the best exchange rate is to know what the current rate is! Before you leave for your trip, check out our handy currency converter below for an idea of what exchange rate to expect. If you’re taking an extended trip, check the rate periodically to stay abreast of any major changes. (Note: The rate shown in the converter below is the interbank rate. For more info, see below.)
Buying Foreign Currency: Get More Bang for Your Buck
When it comes to international travel, getting the most for your money is a big deal. While we usually recommend withdrawing local currency from an ATM as soon as you arrive, there are certain times when it makes sense to purchase currency in advance.
Mark Rowlands, sales director at currency provider Covent Garden FX, explains that buying in advance allows travelers to shop around for the best rate and hedge against exchange rate fluctuations that might affect their buying power. Buying in advance can also give you peace of mind if you’re traveling to a place where ATM’s might not be prevalent, or if you’re concerned about your card being declined.
Below are some tips for getting the best deal when buying foreign currency.
1. Shop around — and shop online. This might sound obvious, but it’s amazing how many people assume their friendly travel agent or supermarket will look after them. Think about it: They are in business to make money, and you are a captive audience. Politely decline and go and surf the net. You can cover the whole marketplace from the comfort of your home.
2. Plan ahead. Don’t leave buying your currency until the last minute. When buying online, you need to allow enough time for your payment to go through, your identity to be confirmed and your currency to be delivered.
3. Beware of “free delivery” offers. What really matters is how much currency arrives on your doorstep. What’s the point saving five bucks on delivery if it costs you $15 worth of currency? Look out for extra hidden charges, and try to find out how much you are paying in total and exactly how much currency you will receive. The benefits of a great exchange rate can be totally negated by commissions and handling fees.
4. Avoid Saturday delivery. There is often an extra charge to get money delivered on weekends. Some companies will deliver to your work address during the week, but make sure you have a secure place to keep your travel money safe.
5. Get together with friends. If you order your currency in bulk, you will have greater buying power. Even online bureaus are happy to negotiate for larger amounts. Call or send an e-mail asking for their best deal.
6. Ask for a price match. If you’ve found a better deal elsewhere, ask a company to match it.
7. Check the money market. Compare the deal you are offered to the market rate. Visit XE.com and look at how much profit margin has been added. You can’t buy from a wholesaler, but knowledge is power. If your supplier is adding 5 percent — which is not unusual — walk away.
8. Beware of the credit/debit card trap. The bureau will probably inform you it has a small charge for debit cards. This is quite reasonable with such tight margins. But very often that’s not the end of the story; most credit cards and many debit card providers will treat your transaction as a cash advance. Check the small print or call your provider. If someone tells you there is no additional charge, get that person’s name. Sign up for Internet banking and pay using a bank transfer to avoid hidden charges. The last thing you want is a 3 percent charge plus interest on your statement when you return from your vacation.
9. Don’t be fooled by buy-back “guarantees.” Read the small print: Is what you are getting really worth paying for? You might be better off shopping around for the best deal for unwanted currency when you get back home. Never assume you have to take your unwanted currency back to where you got it from. Take it home, cash it in and shop around for the best buy-back rates available.