Travel money tips for better trips

How to make the most of your holiday spending money

Marcus Webb – Virgin Money Living Mentor

by Marcus Webb | Independent Money Mentor

Editor of Delayed Gratification and independent journalist

You’ve spent hours preparing for your jolly holiday – picking out elegant beach attire, daydreaming about cocktails on the sand and practising foreign phrases – and now you need to nail down the most important thing of all: your spending money. Here we explain why the cost of spending can vary so wildly abroad, and share travel money tips for getting the best deal on your holiday money.

Top travel money tips

  • Buy your currency before you go – this gives you time to compare rates and fees to get the best deal for you.
  • Take more than one payment type – it’s useful to have local currency for small purchases as well as an alternative method of payment for bigger transactions.
  • Use the right card. It’s important to know which card to use and when.
  • Make sure your holiday money is adequately protected if it’s lost or stolen. Not all travel insurance policies cover stolen cash and for those that do, you will usually only be covered up to a certain amount – usually between £200 and £500.

Credit cards

These are the most widely accepted cards around the world, so can be a convenient way to manage your spending money.

There are other advantages to spending with a credit card, too. They offer you the same level of protection abroad as when you use them in the UK. So if your card is stolen, you should be covered for any money that’s spent on it.

Another advantage of using credit cards is that they give you Section 75 protection – even overseas. This means that for any transaction of between £100 and £30,000, your card provider and retailer are jointly liable if things go wrong. This can be very useful with holiday purchases, as returning items when you’re back home can be difficult.

More information on Section 75 is on the Government’s Legislation website Link opens in a new window . However, there are some potential disadvantages associated with spending overseas on your credit card. You could have to pay a foreign transaction fee. Usually this is around 2.75 percent of the value of the purchase you are making.

If you use your credit card to withdraw cash abroad, you’ll likely have to also pay a cash withdrawal fee. This is usually around 3-5 percent and would be in addition to a foreign transaction fee.

You will also be charged interest on cash withdrawals from the day of the withdrawal. This is the case even if your card offers zero percent interest on purchases and you pay the balance in full at the end of the month, as the interest-free period does not apply to cash withdrawals.

Finally, as with spending in the UK, unless your card offers zero percent interest on purchases, if you don’t pay off your card in full at the end of the month you’ll pay interest on your holiday purchases.

Credit card tips:

  • As in the UK, some retailers may have a minimum card payment amount, so it may also be a good idea to take some cash in the local currency for smaller purchases such as public transport and refreshments.
  • Ask for all overseas transactions to be made in the local currency rather than sterling. While a sterling transaction shows you the exact cost of your purchase, your credit card network (Visa or Mastercard) is likely to give you a better exchange rate than the retailer – meaning you’ll save money by paying in the local currency.
  • Remember to tell your credit card provider if you’re planning a trip abroad. Otherwise, they may think your card is being used fraudulently and block it. It’s a good idea to take a copy of your credit card company’s 24-hour number with you so you can get in touch if something goes wrong. You may also want to give them a contact number for you, in case they need to contact you while you’re away.

Credit cards may be good if:

  • You’re after convenience
  • You want protection against theft
  • You want Section 75 protection

Credit cards may be bad if:

  • You want to use them to withdraw cash
  • You want to make small purchases
  • You won't repay in full every month
  • Your card charges fees for foreign transactions

Debit cards

Like credit cards, these are convenient and safe. Their main advantages are that they are widely accepted and offer you the same level of protection against fraud as credit cards, meaning you should be covered if your card is stolen. There are a few down sides to debit card spending abroad, though.

Like many credit cards, debit cards commonly incur a transaction fee for non-sterling spending (typically around 3 percent of the transaction).

A few may also add a spending fee of between £1 and £1.50 with every overseas purchase – no matter what the value. With small purchases this can add a considerable percentage to your spending.

Unlike credit cards, they provide no Section 75 protection if things go wrong.

Finally, you will pay a withdrawal fee if you use an ATM – as with credit cards. This is usually around 2 percent of the amount you withdraw.

On the plus side, however, in contrast to credit cards, debit cards don’t incur interest charges on cash withdrawals.

Debit cards may be good if:

  • You’re after convenience
  • You want protection against theft

Debit cards may be bad if:

  • You want a good rate (unless your card doesn’t charge a foreign exchange fee)
  • You want to withdraw cash
  • You want to make small purchases

Prepaid cards

A prepaid card enables you to load a card with cash before you travel – as you do with a gift card or phone card – then use it like a debit card.

You can buy a travel prepaid card in major currencies, such as Dollars or Euros.

There are many potential advantages to spending with a prepaid card.

As with foreign currency, you are locked into the rate when you buy. This gives you certainty about how much you have available to spend and can make it easier to budget.

If you lose your prepaid card, your issuer will cancel the old one and send a replacement – meaning they are safer than carrying cash. However, some issuers supply two cards for prepaid travel accounts, allowing the second to be activated should the primary card be lost or stolen. They are also more convenient than travellers’ cheques – as they are ready to spend without needing to be exchanged into cash.

However, as with all methods of payment, there are some potential disadvantages to be aware of.

Not all places accept them. Car hire firms and pay-at-pump petrol stations are the most common examples.

It’s also wise to make sure you understand and compare charges before you buy. Some cards levy an application fee of up to £9.99. You may also have to pay top-up charges or a fee for a replacement card.

Prepaid cards may be good if:

  • You want to stick to a budget
  • You’re organised enough to buy in advance
  • You lose it or it's stolen

Prepaid cards may be bad if:

  • You need to hire a car
  • You want Section 75 protection

Foreign currency (cash)

Cash is the most convenient method of payment. It’s a good idea to take some, in the local currency, to pay for smaller items such as refreshments and public transport.

With cash, you have certainty about how much spending money you have – which is great if you’re on a budget.

Its main disadvantage is that it’s not as safe as other methods of payment.

Not all travel insurance policies cover stolen cash. Among those that do, you will usually only be covered up to a certain amount – usually between £200 and £500. Anything over this and you risk losing your money if it’s stolen or lost.

That’s why it’s generally a good idea to take a more secure method of payment – such as a card – as well as cash.

You can buy foreign currency (sometimes referred to as ‘travel money’) from the Post Office, bureau de change, travel agents and banks as well as some shops and supermarkets and online providers.

Generally, you won’t get a better deal on your foreign currency if you wait until you arrive at your destination. It’s wisest to buy your currency in advance (if you can – some currencies, away from mainstream tourist destinations, are only available in the country you’re visiting).

Plan ahead to get the best deals. Shop around not just for the best exchange rate, but for the lowest fees too: if you need your currency to be delivered to you, there may be a charge (usually around £5).

Foreign currency is also sold at airport and ferry terminals but they tend to offer lower rates, so it’s wise to avoid them – or at least order ahead online to collect there.

And finally, if you’re paying a UK exchange bureau, to get the best deal pay by cash or debit card. Paying with a credit card is classed as a cash withdrawal on the card, meaning there may be a fee and interest to pay – even if you fully repay the balance every month.

Foreign currency may be good if:

  • You want to stick to a budget
  • You’re organised enough to buy in advance
  • You have a secure place to keep it

Foreign currency may be bad if:

  • You want security against theft

So that’s the final tick on your pre-holiday checklist. Now you’ve sorted all the preparation, it’s all just piña coladas and swaying palm trees from here on out.

Before making financial decisions always do research, or talk to a financial adviser. Views are those of our mentors and customers and do not constitute financial advice.