PracticeConsultingPersonal Finance – Don’t leave home without currency

Personal Finance - Don't leave home without currency

Planning a holiday includes deciding how to run your finances while you're away. Stephen Womack warns of the pitfalls of high-street deals.

Postcards home, beers by the pool or even ‘Kiss-me-quick’ hats.

However you spend it, holiday cash is unavoidable.

Today’s traveller has more choices than ever before of ways to get foreign currency – and plenty of alternatives if they don’t fancy fumbling with unfamiliar folding stuff. Putting a few moments’ thought into how you’ll manage holiday spending can bring useful savings.

Many of us automatically head for our local bank or high-street bureau de change: this way of getting holiday cash involves the least thought, but is likely to be the most expensive. Commissions vary, with 2% to 3% a market average.

But the commission itself is only part of the story. Money changers disguise their true charges with offers such as ‘commission-free’ deals or pledges to swap back unused cash for free.

Beware. Such deals can mask a miserly exchange rate. The fairest way to compare currency charges in the high street is to visit three or four outlets on the same day and get a quote in pounds and pence for a set quantity of the currency you desire.

Those who don’t fancy the high-street trudge are increasingly ordering their holiday cash by phone. Specialists Thomas Cook (0990 447722) and FX Direct (01786 442022) run telephone services, as do several banks.

Money is sent to either home or office addresses. Charges on the phone services can be surprisingly competitive, especially for larger sums as a minimum fee of between £3 and £7 applies.

Travellers are wisely cautious about carrying too much cash. If lost or stolen, it is gone for good. So a more prudent option is to take a little cash with you, and then to use your own hole-in-the-wall card at a machine abroad to top up with local currency as and when you need it.

Using your ATM card will carry a fee – usually 1.5% to 2% of the value withdrawn – but there will be a favourable exchange rate. Travellers who use this tactic are less likely to end up with handfuls of unused foreign cash, although they may also end up spending over their holiday budget as they constantly visit cash dispensers.

Those with Switch-branded cards should be able to get money from machines with the Cirrus or Maestro signs, while Visa debit card holders, also called Visa Delta, can tap into Visa-branded machines. As banks join forces, many ATMs can accept both types of card. The latest machines recognise UK cards and respond with instructions in English.

Many holiday makers are forsaking cash altogether. Credit and debit cards are fast becoming the holiday maker’s number one choice for payment away.

Easy to use, and easy to cancel if they are lost or stolen, cards basically ignore borders. The traveller who is passing through two or three European nations on a motoring tour, for example, is most likely to use their plastic for the bulk of spending.

Scribbling on the credit card chit after a paella and sangria, it is easy to think of plastic as a free way to spend overseas. This is not the case. Credit card issuers slap a 2.5% to 2.75% charge on overseas use, but spending will be converted to sterling at close to money market exchange rates, so using a card is still competitive to cash.

Travellers’ cheques are a trusty companion of many holiday makers, but are drifting out of fashion. They are more secure than cash, with leading issuers such as American Express usually able to arrange replacement cheques within 24 hours. They can be exchanged widely, but travellers who want to get the fairest exchange rates on sterling cheques should go to a bank, rather than trust the deal they are offered by hotel reception desks or restaurants.

‘EURO-IN’ NATIONS CREATE CURRENCY MAGNET

Eagle-eyed travellers to Europe will already have spotted the impact of the euro.

A few shops, restaurants and hotels have started pricing goods in both their home currency and euros. Shoppers who use credit cards or cheques to settle their bill can even opt to pay in euros, although the gesture is largely symbolic.

A UK visitor to France who used their credit card to pay for a meal would be billed the same in sterling, regardless of whether they opted for francs or euros at the till.

The main impact of the euro so far has been felt in the 11 ‘euro-in’ nations. Since they welded their currencies together in January, exchange rate fluctuations between them have been eliminated, even if the euro itself has wavered against world markets. One euro forever more equals 1.956 German marks or 6.559 French francs or 1936 Italian lira.

The euro will remain a notional currency for another two-and-a-half years. Euro notes and coins will not be issued until January 2002. Notes and coins of the old currencies will remain valid for a further six months until July 2002.

Until then, Europhiles can amuse themselves by purchasing euro-denominated travellers cheques, issued by Thomas Cook and Visa. These can be cashed in the euro zone, and are a useful option for the UK traveller who plans to visit several euro-in nations in one trip.

TOP 10 HOLIDAY DESTINATIONS FOR UK TRAVELLERS

France

Spain

US

Greece

Italy

Portugal

Turkey

Cyprus

Ireland

The Netherlands

Source: Visa International

Stephen Womack is a reporter with the Financial Mail on Sunday

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