We show you how to avoid the twin evils of low exchange rates and high commission fees so you can spend more enjoying yourself on holiday.
We spend days and weeks pouring over brochures to choose our ideal holiday destination, yet give considerably less thought when it comes to arranging our holiday money.
This usually means a last-minute trip to the bank in your lunch hour, or worse, a pre-check-in dash to the dreaded airport bureau de change. It might be quick and easy, but by exposing yourself to a lack of competition your pounds are likely to find themselves on the receiving end of low exchange rates and high commission fees – meaning you’re left with less to spend on holiday.
Know your enemy
When you consider that a recent report found a difference of over £40 between the best and the worst providers when exchanging $500, you can begin to see how not shopping around for your foreign currency could leave you seriously short-changed.
But why is there such a marked difference between exchange bureaus? To answer that question and help you get the best deal for your holiday cash, we’ll show you the sneaky tricks Bureaus use to make their money so that you can avoid them.
1. The devil is in the detail
Bureaus make their money on the difference between the price they buy currency at and the price they sell it to you for. The lower the exchange rate they offer you; the more profit they can make.
Airport bureau de changes are renowned for offering some of the lowest exchange rates and highest commission fees. So you should try to avoid using Airport bureau de changes at all costs. In fact the only reason you should have for going anywhere near them is to collect your pre-paid currency if you have ordered it online.
Surprisingly, high street banks rarely offer the best exchange rates on foreign currency either. So don’t just assume that your bank will give you a good deal.
2. The unholy trio
Many bureaus charge you a commission whenever you exchange foreign currency. These tend to fall into three categories: minimum charges, flat fees and handling fees.
Always remember that commission fees can add to the cost of your borrowing, sometimes significantly, and you need to take these into consideration when you’re trying to work out if you are getting a good deal for your currency.
That said, some bureau de charges charge commission fees but because of their competitive exchange rates still offer a good deal, so for this reason, they should not be discounted all together.
3. No such thing as a ‘free’ lunch in Forex town
Just as some bureaus will charge you a commission, there are others that advertise as commission free exchanges. This may sound tempting, but that doesn’t necessarily mean that you are going to get a good deal.
Remember that bureaus are in the business of making money. If they are not doing that by charging commission fees, then they are likely to make up for this by offering you lower exchange rates.
How to beat the Bureaus
1. Research is the key
The more research you do on a product; the more chance you have of getting a good deal – and foreign currency is no exception to this rule. Before even considering where you might buy your currency, use an online currency checker to get the very latest exchange rates. Then you can compare them with what rates are being offered by the various exchanges.
Currency rates change daily so, if possible, it is best to do your research and then buy your currency on the same day.
2. Shop around
Remember that exchange rates can vary greatly, so it is always a good idea to shop around. It's usually the case that you'll get a better deal on your travel money by ordering your currency online.
Banks, high street bureaus and the Post Office all operate online currency exchange services that tend to offer far more competitive rates than are available in store. There are also a whole host of specialist online-only foreign exchange sites that are well worth a look too. Travelex in particular are worth a try as they guarantee that they'll give you the best rate on your forex.
Always remember to take into account commission fees and/or delivery charges as well as the exchange rate when you work out who will give you the best deal. Once you have done this you should be confident of choosing the route that will give you the most for your money.
The bottom line is that you want to end up with the most Dollars, Euros or Yen for your Pounds.
3. Pay cash
A good tip is to try to buy your holiday cash with cash. Paying with a credit card will mean a hefty cash transaction charge as it is classed as a cash withdrawal. This could annoyingly negate the favourable exchange rate that you have so diligently tracked down.
Of course you will be limited by how much cash you can draw out of a cash machine, but even buying with a debit card could mean a charge of between 1.5 to 2.5% (not all debit card providers levy a fee - check our current account comparison table for details) . This is because your own bank only wants you to buy your currency from them and will effectively penalize you if you go elsewhere.
4. Haggle
Don’t be afraid to haggle. Even though your high street bank would be likely to give you short thrift, some bureau de changes and travel agents are often willing to match the exchange rates of their competitors.
5. Get organised
But most importantly- don’t leave it to last minute! Less choice means less competition and a bad deal for you.
What alternatives are there?
Of course cash isn’t for everyone. Although, some is always useful to have on hand for paying taxis and such, there are obvious safety issues associated with carrying around large amounts of cash abroad. If you’re not adequately insured and your cash is lost or stolen, then there’s no getting it replaced.
Some cash alternatives you might consider when going abroad include:
Debit/Credit Cards – as easy to use abroad as cash, but beware of the fees associated with using them overseas. You can be charged a fee for each transaction you make or for cash withdrawals. You could also be subject to ‘loading fees’ based upon fluctuating exchange rates (use our credit card and current account comparison tables to find the cards that give you the best deal when you use them abroad).
Instead of buying your holiday money from a bureau, you could consider withdrawing it from an ATM machine with your debit card when you are abroad instead. However, remember to take into account transaction fees and your bank’s exchange rates first to see if it will leave you better off.
You should always try to avoid withdrawing cash with your credit card when overseas as you are likely to be charged interest at a much higher rate from the moment you get your hands on the cash.
It's also a good idea to always pay in the local currency when you use your cards abroad otherwise you could get charged an extra 4% by the retailer because of something called Dynamic Currency Conversion.
Prepaid cards – can be loaded with cash prior to your holiday and used in exactly the same way as a debit/credit card. They are a more secure alternative to cash as, should you lose your card, it can be replaced (along with all funds) for a nominal fee of about £10. However, they are still subject to transaction fees, cash withdrawal fees and top-up fees, so you need to be careful when choosing which card to take abroad (use our prepaid card comparison tables to find the card that gives you the best deal).
Travellers cheques - although somewhat out of fashion they can still a safe bet. If they’re stolen or lost, as long as you have the cheque numbers they can be replaced at full value.
Sterling travellers cheques aren’t commission free – they are still subject to a commission when you buy them and also when you cash them in. However, foreign currency travelers cheques can be accepted as currency in some countries like the United States. This means that they are essentially commission free once you have bought them and you will also receive your change in cash.
