3 ways to get a better exchange rate for your holiday
I originally wrote this article for the Daily Telegraph, where it appeared in a different form.
If you're headed away, it goes without saying you'll want the best exchange rate possible. The better the exchange rate, the more money you'll have - simple.
1. Don't leave it for the airport
It’s tempting to arrange the travel money in five minutes at the airport. Don’t. Though some boast of zero commission, the dire exchange rate will more than adequately compensate the bureau.
Instead, aim to have funds organised two or three weeks before the trip, so there’s ample time to compare rates and decide what money you really need.
The catch-22 of taking out money beforehand is this: be too conservative with your budget and you’ll spend half the holiday on lentils and tap water (or, worse, stuck penniless and helpless in an emergency), but take too much and you’ll come home to a buy-back rate which can cause your money to effortlessly disappear.
If you’re planning to rely on cash, it’s better to take too much rather than be forced into the charge-heavy use of foreign ATMs. You can circumvent the buy-back problem by exchanging your unused currency at the same rate at which you purchased it – if you go to the right places. Only a few bureaus offer this service – for instance, Sainsbury’s ‘buy-back plus’.
Wherever you exchange, inquire into buy-back schemes and what, if any, commission is charged. Beware guaranteed buy-back schemes are usually burdened with additional charges. Rather than trawling the high street for the best rate, head to a comparison site (I’ve found mytravelmoney.co.uk and travelmoneymax.com to be excellent). You can order your money to your doorstep.
2. Avoid the card charges
While taking out money on any debit or credit card attached to a student account is an effective way to demonstrate your idiocy to the bank. Withdrawing money on a student debit card abroad typically results in a charge of 2-4% of the transaction amount plus a currency exchange fee of around 3% – and hence, they should only be used infrequently, to withdraw large sums.
While it's certainly true that some credit cards do offer the best rates going abroad, they aren't aimed at students and it's unlikely you'll get one. That's why we recommend you don't use one.
3. Clue up on prepaid travel cards
The right prepaid card won’t have the charges of a credit or debit card, but there’s more to it than that.
Owing to a general unfamiliarity with prepaid cards, they aren’t widely used. This is no reason not to have one; they’re safe, convenient and you’ll get excellent exchange rates. The premise is simple: they look, smell and most probably taste like a debit or credit card, and work much the same way: into the machine, pin number entered, item bought.
However, unlike debit/credit cards, they aren’t attached to a bank account, which provides an excellent foil against fraudsters and makes it easy for anyone, including a student with a poor credit history, to successfully apply for one. They also contain a set amount of money on them (determined by how much is bought) which cannot be breached, forcing one to be faithful to their budget.
It’s also remarkably easy to block a card – a simple call, or even a text, will do it and the balance can be transferred. A replacement card will typically cost £10, but then, a lost wallet full of cash costs can never be exchanged. Note that a prepaid card cannot be used to pre-authorise a transaction, such as when you use a card to set up a tab.
Their main strength, though, is the absence of charges: zero ATM transaction fees (unless there are those imposed by the machine itself) and zero fees when used in store. The card itself should be free and the exchange rates will be extremely competitive – though rarely the absolute best, they will be considerably more attractive that the airport and usually more competitive most high street offerings.
It cannot be overstated that it is remarkably important to choose your travel card after some thought, as the market is not yet standardised. While some are fee free, many contain hidden charges. These are such things as an ‘inactivity fees’ which charge a couple of quid when a card is unused for a time. Worse, some providers, will charge a fee for having the card and also a fee for withdrawing money, which means they are as hopeless as a credit card.
It may take a moment but a trawl through the terms and conditions of any card could save you vast sums. From those out there, TravelEx is an established and trustworthy source, and student-friendly newcomer VidaFX represents terrific value for money and has almost no fees attached.