Most banks treat foreign travel as another way to make extra profit from their customers, adding fees and charges that mean your money buys you less when you spend abroad - whether you pay by card or local currency.
While taking your usual debit or credit card on holiday may seem like the easiest choice, you could find an expensive bill waiting for you when you get home. The same applies to travel money if you buy it at the wrong exchange.
Before you jet off on holiday, you need to consider the cheapest way to spend.
Should you just use your existing card?
If you use the wrong type of card and you could find yourself paying well over the odds every time you buy anything or withdraw cash.
Debit cards generally have the worst fees, often charging a minimum transaction fee every time you use them as well as a percentage fee, ATM charges and uncompetitive exchange rates.
Although credit cards are generally better, many of them come with these fees too - and they charge interest as well, often even if you repay in full.
Rather than simply taking your existing card, you need to do a bit of research and find a credit card specifically tailored for use overseas.
Get a cheap overseas credit card
Providing you are not travelling to the middle of nowhere, using a credit card to spend while you are away can be the cheapest and safest way to manage your money overseas.
Rather than simply taking your existing credit card, you need to do a bit of research and find a credit card specifically tailored for use overseas.
However, a little caution is needed as some banks market travel credit cards that are not any better for spending abroad than their standard issue option. For this reason you need to double check the charges to make sure that the card you apply for actually represents a good deal.
The most important thing to check before applying for an overseas credit card is the International Charges that the card provider will apply.
Most credit cards will apply a load fee of around 2.75% - 3% on top of the Bank foreign exchange rate (which alone is actually quite good) for all overseas transactions; this means you will pay more for your purchases just for paying by card. However, several overseas credit cards apply a lower fee, and some come without an international load fee.
You will need to make sure that you pay in the local currency whenever you are given the option so that you avoid extra charges when you make transactions.
However, withdrawing cash on a credit card, or getting cash back while your away is still likely to be considerably more costly than changing travel money before you leave the UK so is best avoided.
You can compare the different overseas credit cards, including the different fees they charge and the total charges you would incur on an amount of your choosing by using our Credit Cards to Use Abroad comparison table.
Pay off the balance in full
If you decide to opt for an overseas credit card then you should ensure that you can repay all your transactions in full at the end of each month.
Fail to do so and the likelihood is that you will be charged a hefty interest rate and undo all your good work in finding a cheap card.
Keep your overseas card for overseas spending
Most credit cards that give you cheap spending abroad are less competitive compared to other credit cards when used at home.
For this reason it is often worth keeping your overseas credit card exclusively for use while you are out of the UK and using a more profitable card for regular spending; this guide will help you find the one for you.
Apply in plenty of time
There is no point applying for a new credit card a couple of days before you plan to travel as it will usually take a couple of weeks to arrive by post.
Apply a month to six weeks before you leave for your vacation so that you can be confident that it will arrive in time. Our guide explains how long it takes to get a credit card.
Double check the ts and cs before you travel
Credit card providers change their terms and conditions regularly, so you cannot just assume that your existing credit card will still offer cheap spending abroad.
Double check that your card has not upped the charges 4 to 6 weeks before you plan to travel so that you have time to make a contingency plan just in case.
Let your card provider know you are going away
There is no point spending time finding a cheap credit card to use overseas only to find that you get it blocked as soon as you try to use it.
To avoid this, let your card provider know when and where you plan to travel in advance so that they do not put a stop on your card.
Change foreign cash
Whether you are travelling to a tourist resort or heading off the beaten track, taking some local currency in cash makes sense.
Where you get your travel money, however, can have a major bearing on what you will actually have to spend while you are away.
No one can accurately predict how foreign currency markets will change from day to day, but it is still best to plan in advance. Swapping your money at an airport currency exchange desk is one of the most expensive ways to get your hands on foreign currency.
This is simply because Bureau de Change at airports can afford to charge you more for changing your money because you do not have any other choices by then.
However, getting the best deal on travel money is not as simple as going for a Bureau de Change that advertises 'commission free' rates, as the exchange rate may still be poor.
Instead, get quotes from several different travel money companies and go for the option that will give you most in return when you swap your Sterling.
Read our guide to getting the most foreign currency for your cash.
Check you are covered
While taking foreign cash gives you an easy way to spend overseas, carrying hundreds of pounds worth of currency with you is a tad risky. To protect yourself against the unforeseen you should check that your travel insurance policy provides adequate cover for travel money.
You also need to check their claim terms to make sure you play by your insurer's rules and do not end up out of pocket should the worst happen.
Do not buy currency with a card
If you use your debit or credit card to pay for your travel money, you could be undoing all your hard work finding the best rate.
This is because most card providers classify foreign currency purchases as international transactions, and therefore apply extra charges - even if you change your money in the UK.
Credit card providers will classify forex transactions as cash withdrawals so you're likely to incur a whole host of other charges too.
For this reason if you are changing your cash in person it is generally safest to withdraw the money from an ATM using your debit card.
However, if you buy currency online you need to give it a little more thought. Check your debit card's terms and conditions before you carry out the transaction to find out whether you will be charged.
Not all debit card providers will apply International Charges so use a fee free card if you have one. Otherwise use the debit card that will charge you the least for the transaction.
Consider a prepaid card
Prepaid cards are becoming a more and more popular way to spend overseas, especially as they are accepted in almost all of the same places as your credit or debit card.
You load this type of card with a set amount of money so you can budget more easily and do not have to worry that someone has access to your bank accounts if your card is lost or stolen.
Prepaid cards are notorious for charging fees for anything and everything, but if you choose a card carefully you will be able to spend abroad without paying anything extra.
You need to choose a card that does not apply a fee for international ATM withdrawals or transactions and that lets you load cash for free. You will also need to check the card purchase fee, whether any monthly maintenance fees apply and how much you will be charged if you use the card in the UK too.
Prepaid cards are available in a selection of different currencies, including Sterling, US dollars and Euros, so you need to check which option will be best suited to where you are staying.
Check out travellers cheques
If you do not want to carry too much cash with you on your travels, travellers cheques could be a useful alternative. Most are now issued by American Express and are available through the majority of forex dealers as well as the Post Office.
They can be replaced within 24 hours if lost or stolen, as long as you have made a note of each unique serial number. American Express travellers cheques also come with the added promise to help should your bank card or passport be lost or stolen while you are away.
However, while travellers cheques can be easily exchanged in most tourist areas and city locations, if you are heading somewhere more remote you may find it difficult to cash them.
Although the exchange rates for travellers cheques can vary slightly from the cash rate, your main concern should be checking whether you will be charged commission. Commission charges on travellers cheques can often be anywhere up to 3% and can make them a considerably more costly choice.
If you will need to exchange your travellers cheques into a third currency when you cash them it is likely that you will have changed currency twice and will have lost out during the exchange.
Mix and match
When it comes to spending abroad it is generally best to take a cheap card (credit, prepaid or debit) as well as some travel money so that you have all bases covered.
Using a cheap overseas card can be a cheap option for spending in resorts, supermarkets and bigger stores, while you are away it is still likely that you will need a certain amount of the local currency as well for smaller transactions, such as taxi or bus fares and eating out.
Research your destination
If you plan to visit a major tourist destination then using a credit card for the majority of your spending should not pose too much of a problem. However, if you plan on backpacking around Asia, using cash may be your best option.
You may also find that certain countries will only exchange certain currencies, such as US Dollars, into their local currency. Visit the Foreign & Commonwealth Office website for advice for each country.