What is the best way to spend abroad?

Going on holiday is great, but how can you get the best exchange rate when it comes to foreign currency? Getting a good deal is far from straightforward as you’re hit with inflated airport rates and charges for using your bank card abroad.

But if you know what you’re doing, you can slash the cost of foreign currency and make sure you’re getting the best possible deal on your holiday spending. Here’s what you need to know:

What are the options for spending while abroad on holiday?

• Cash: Take foreign currency but make sure to budget correctly, or you will be left with no money by the end of your trip. Ensure you find the best deal before leaving to avoid buying currency at airport exchanges where the charges are high, and rates are poor.

• Credit card or debit card: Take your credit or debit card abroad, but watch out for foreign usage charges and your cards getting blocked by your provider. Some banks charge a daily fee that can soon stack up.

• Prepaid card: These cards can be loaded with cash which you are then allowed to spend in shops or withdraw from ATMs. They only let you spend the money you have put on the card, so there’s no risk of getting into debt.

• Traveller’s cheques: These can be converted into foreign currency in specific locations abroad. You will need to sign and provide an ID to do this. Traveller’s cheques are becoming rarer, making it increasingly hard to find someone who will exchange them for cash.

Take cash abroad

Cash is the easiest way to start spending when you get to your destination.

Find out how to get the best deal on travel money here

Use a debit card

Most providers will charge you for every transaction you make overseas, but you can find credit or debit cards that will cut the cost of your spending abroad.

Compare debit cards here

Use a credit card

Find travel credit cards here

How much does it cost to use your bank cards abroad?

The cost of using bank cards overseas depends on your card type and the bank’s terms and conditions.

This table shows some of the typical fees you could face when using a debit card or credit card overseas:

Debit card costs

The fees might seem small in the example above, but they can soon mount.

For example, the table below shows the costs you could incur with an exchange rate of £0.73=€1, a card transaction fee of 2.99% and a cash withdrawal fee of 2.75%.

This example shows that just two transactions abroad can cost you as much as £10.48 extra unless you shop around and find a debit card which offers lower or non-existent charges for usage abroad.

Credit card costs

This example shows an exchange rate of £0.73=€1, a card transaction fee of 2.99% and a cash withdrawal fee of 5%.

In this example, the two transactions can cost you £14.59, but you can find a credit card that does not charge for card transactions abroad, saving you the £5.46 cost above. If you use your credit card for spending and avoid cash withdrawals, you could eliminate these costs altogether.

Daily interest on a credit card

On top of the cash withdrawal fee, you will also need to pay interest on the cash you withdraw using your credit card.

This table shows how much you will be charged over 10, 20 and 30 days if you withdraw €250 (£182.50) abroad:

Avoid using a credit card abroad if you plan on making cash withdrawals due to the excessive charges that come with them.

Use a prepaid card

You can use a prepaid card in a similar way to a credit card, except you need to top up the account with funds before you can use them, rather than spending money and paying it off later.

There are two types of prepaid cards:

• Standard prepaid cards are designed to be used in the UK, but you can also use them abroad for cash withdrawals and card transactions. You are charged at the exchange rate each time you use these cards abroad.

• Travel prepaid cards, or currency cards, are loaded with a foreign currency instead of sterling, which means you are charged a single exchange rate at the point of topping up the card, rather than every time you use the card.

Compare prepaid cards to use abroad here

How much do prepaid cards cost to use abroad?

Some prepaid cards can come with several potential fees:

When you use a cash machine with a prepaid card, the provider may charge you further fees and limit your withdrawal amount.

* Based on an exchange rate of £0.73=€1

How much does it cost to load a prepaid card?

Use traveller’s cheques

While traveller’s cheques aren’t nearly as common as they once were, you can still get them from the post office or a bank. A traveller’s cheque works by converting sterling into a foreign currency and can be cashed when you’re abroad.

When you buy traveller’s cheques, be careful to avoid any unnecessary charges. For example, if you purchase your traveller’s cheques using a credit card, you will be charged both by your credit card provider for a cash withdrawal and by the traveller’s cheque provider too.

There is usually no charge for using your debit card to pay for a traveller’s cheque but double-check before completing your order.

When you get them, you must sign your traveller’s cheques or risk someone fraudulently signing and using them.

Traveller’s cheques are provided by many travel money companies in association with American Express. This means that you will need to find an American Express foreign exchange kiosk abroad to cash in your traveller’s cheques or see if your hotels will cash them in for you.

Use the American Express Travellers Cheques website to search for kiosk locations.