Your Holiday Money - Cash, Card or Traveller Cheque?

We have all done it, we have all come home with that special souvenir that we just knew we would wear, drink, or simply adore when we got home but somehow ended up as yet more clutter in the dark echelons of our cupboards. But exactly how do you pay for it? Does carrying cash make you hot under the collar with worry  - or does the thought of credit card fraud leave you cold? Use our guide to help you decide:

FOREIGN CASH

It's great to have local currency in your pocket. It means you can buy a drink or hail a cab when you arrive, but if you should lose it or it is stolen, there is no come back. Also, currency exchange may be expensive. Fees and commissions or a poor exchange rate can dig into your fun money. The worst culprits for high charges tend to be bureau -de-change at airports, touristy areas and hotels which all offer pretty dismal rates of exchange.

For a little motivation to plan ahead, think about this: a rate of 1.38 will get you 550 euros for just under £400. Find a bureau offering you just one more cent to the pound and you will have an extra ten euros in your pocket. 

Your best bet is to get your holiday money while still in the UK. Marks and Spencer’s commission free Bureau de Change often proves to be a winner with great exchange rates. Otherwise the Post Office is a close second. If you hold a bank account check in with your bank as some offer a discount on fees for their customers.

Withdrawing cash from foreign ATMs is convenient but be aware of the cost. Apart from Nationwide, all banks charge a fee or at least 1.5 per cent or £1.50 for debit card cash withdrawals.

With the online revolution, you can now buy foreign cash on the internet. Your money turns up by registered post and often with better rates without fees and free delivery and some even offer a buy-back service.

TRAVELLERS CHEQUES

These are probably the most secure way to carry money abroad. The only problem of course is that they are inconvenient because though you can exchange them at bureau de change you do have to have your passport with you. They also tend to be more expensive sometimes as much as 6 per cent of the total value in fees. On the other hand they do often attract a competitive exchange rate when compared to cash and some shops in tourist areas may accept them as payment. The best thing about travellers-cheques is their security features. If you lose them, no matter where you happen to be, replacements are easy to arrange by phone and often within a day.

If you do opt for travellers-cheques, make a photocopy or copy down their serial numbers and keep these with copies of your passport just in case of loss.

CREDIT CARDS

You really should take a credit card with you whenever your travel because you will need to use/show it when booking a hotel room or for car hire. Paying by plastic may be easy and convenient where-ever you are in the world but can be expensive. The amount you spend is shown on your statement in your home currency and generally at pretty good exchange rates especially when compared to travellers cheques or bureau de change. What makes it expensive  is a conversion fee attached to each purchase which ranges between 1 to 2 per cent of the purchase value. So check charges with your credit card supplier.

If you are worried about credit card fraud then for sheer peace of mind it is worth investing in credit card insurance. Your credit card supplier can  arrange this and if your card is misused or stolen you won't be out of pocket.

Cards are so convenient that you may be lulled into using your card to withdraw cash from an ATM. You could be hit with withdrawal fees of up to 2% as well as the currency conversion fee and to top it all off, interest accrues immediately at a higher rate than money spent on purchases. Use your debit card instead.

Most credit card providers charge a minimum of 2.75 per cent for each transaction with the notable exception of Nationwide, the only big lender that does not charge for overseas purchases. Liverpool Victoria has no fee for purchases in the EU but levies a 2.75 per cent fee everywhere else. Cahoot charges 2.25 per cent globally.

DEBIT CARDS

Debit cards are becoming as easy to use abroad as credit cards, but are useless if you have no money in the bank or an agreed overdraft. If your card has 'Cirrus', 'Visa', or 'Plus' logos then you can roll by any ATM worldwide that shows the same logos. Exchange rates are competitive and at least one bank - Nationwide - makes no charges at all for using debit cards abroad.

Many shops will accept your debit card and you can recognise which ones do as they will display Maestro' 'Visa' or 'Visa Electron' symbols. Expect fees. However, inform your bank you are going abroad and likely to spend more than usual as some will block your card if they see unusual international transactions.

PRE-PAID DEBIT CARDS

New on the overseas travel money scene are the Pre-Paid Debit Cards. These behave like plastic travellers-cheques. You can buy the card from any money exchange chain (Travelex, Post Office, Thomas Cook, Western Union or directly from card companies such as Visa or American Express) and load it up with money (pounds, euros, US dollars), then withdraw at an ATM or debit card payment system. There is no bank account attached to them and if lost then only the amount you pre-loaded is at risk. However, they can be cancelled and swiftly re-issued with the remaining balance available to spend. Not only that, if you have requested an additional card on the same pre-paid account you can continue spending while the card company cancels and re-issues the one that was lost or stolen.

On the downside, there are fees involved including a charge to buy the card – usually around £10, a cost to load them – Western Union charges £3 and the Post Office 1.5 per cent of the amount loaded - and a fee every single time you withdraw money which range from 85p to £2.00.

Also, unlike a credit card where your purchases are covered by the Consumer Credit Act if something goes wrong, the travel card is viewed as cash and has no such benefit.

10 March 2008