When you plan your holiday is the time to work out a holiday budget. While it is hard to work out exactly how much you will spend while abroad, fluctuating exchange rates, and unexpected extras, you can pin down your transportation and accommodation costs to the nearest dollar if you take a little care researching your airfares and hotel or resort options. Good holidays planners usually book well in advance, but you could consider taking advantage of last-minute deals which can save you heaps on regular rates.
Let’s say you have taken and you’re off on your summer holiday first thing tomorrow. You’re probably delighted to have won yourself such a fantastic bargain, and getting your cash sorted is a fairly low priority compared to finding your swimming costume and lilo. After all, there’ll be a choice of Bureaux de Change at the airport and even if that fails, there will be plenty of ATMs abroad and retailers/restaurants that accept your cards.
If you want to maximise your holiday budget, though, you would be wise to take stock of your options now. By exchanging cash at the last minute – at the airport or station, for example, you will undoubtedly lose out to higher exchange rates, based on the fact that you have little choice but to accept what’s on offer if you want to have some cash on your arrival at your holiday destination. Even if you find an exchange bureau that offers ‘commission free’ deals, the location of the office makes it unlikely that the exchange rates will be competitive.
You may instead decide to trust in your debit/credit cards, either using them directly for transactions abroad or withdrawing cash from the increasing number of ATMs appearing across the globe. This may be a sensible idea and it is at least likely that you will use your cards for some of your overseas spending, but you still need to do a little homework. For a start, you may not realise the increased costs of using your debit/credit cards overseas. A few high street lenders do not charge for foreign transactions and/or for withdrawing cash from ATMs while abroad, but the majority of banks will apply costs at varying levels.
The most common charge is known as a ‘loading fee’ or lenders may refer to it as an ‘exchange rate administration fee’. On average, this amounts to a 2.75% commission payable on the total cost of your credit or debit card transactions, although Morgan Stanley’s recent quarter-point increase to 3% on credit card transactions may be followed by other providers in future months.
Your card provider may also charge a flat fee for any transaction you make abroad – for instance, Lloyds TSB charges £1 and Natwest £1.25 per transaction. You will have to pay this in addition to the exchange rate administration fee, meaning that a £100 payment would incur charges of £4.00/£4.25 respectively.
Withdrawing cash from an ATM while abroad has never been so easy, but this also incurs costs of which you should be aware. For example, you may be charged up to £5 for using a cash machine overseas, depending on which card provider you are with and the amount you withdraw. Add the exchange rate administration fee on top of that, and the charges quickly add up. For example, if you make two £100 cash withdrawals and two £100 card purchases, you will be looking at paying average charges of around £15/£16, which could further rise as you enjoy your holiday freedom.
There are several ways, however, that you can ensure you make the most of available spending money. No matter how eager you are to get on that plane, it is always worth taking some time to compare credit/debit card charges beforehand so you get the best deal. Read the summary boxes in credit card leaflets; among the fees and charges displayed will be the foreign currency loading fees, meaning that you can compare providers and apply for the best card before you leave. In addition, search services such as BeatThatQuote.com will provide a quick and easy comparison service of various credit cards in the market. If you are a frequent traveller, you may work out that it’s worthwhile having two cards: one that has the best rates for the UK and another that offers low charges and fees for use overseas.
As a final note, you should also watch out for lesser known charges while you are abroad. Many restaurateurs and retailers now have the facility to get you to authorise your bill in euros but then they recharge your card in sterling. This system, called dynamic currency conversion (DCC), may sound simple enough, but the retailer will charge you a service fee of up to 4%, much higher than the 2.75% average loading fee of your card provider. Always ensure, therefore, that your transaction is processed in euros to avoid incurring this higher charge.
If you withdraw cash from an ATM, you should also remember that interest will be charged from the minute the euros leave the cash dispenser. Unlike other transactions, there is never any interest-fee period on cash withdrawals so you will be paying more, right from the start. If you must withdraw cash, pay it off as soon as possible and, if you don’t repay your holiday spending when you return home, consider transferring your balance to another card provider, which offers a 0% balance transfer rate or a ‘low rate for life of balance’.
Taking the time beforehand to work out the best card deals for your holiday spending may seem a little dull compared to booking your water-skiing or fine restaurants, but if you think of the money you might save that you can put back into your holiday fun, then it is surely well worth the effort.