The cheapest ways to take money abroad

By Sarah Modlock

22 February 2006

I have just returned from Marrakech, a place which solves all your questions about how, when and where to buy your currency before going on holiday. The reason being that the Moroccan currency - the Dirham - must not be brought into the country and so you have buy when you get there.

Of course, this does not mean that you miss out on the great exchange-rate shop-around. Oh no. If you go there, take a guided tour with a local on the first morning and get them to give a nod to the exchange clerk at the nearest major bank. Never has 'These girls are with me, don't rip them off' been conveyed in such an elegant way.

Travel seems to be high on the agenda with many people right now. Perhaps the leap in energy prices has sparked the idea that it is cheaper to spend a week away than to run the central heating. Once you have shopped around for the trip and the travel insurance you have the joys of currency, cheques and cards to contend with. Here's a helping hand:

Currency

Buying your currency before you leave the UK is much cheaper than withdrawing cash from an ATM when you arrive. You could save more than £5 for every £100 you take out. Many high street banks, building societies and travel agents plus Marks and Spencer and the Post Office all sell commission-free.

It is easy to focus on commission - or lack thereof - but it's also important to check the exchange rates offered. A few minutes online shows that Thomas Cook is bottom of the rates I checked for US Dollars, offering 1.65 per pound. Lloyds TSB and the Post Office had 1.66, Thomson Holidays and Nationwide had 1.67, Marks and Spencer 1.68 and Travelex 1.69. Not a huge difference but it all adds up. The crucial thing to remember is that these rates are all for online purchases and if you buy them over the counter, you can expect the deals to be less impressive.

It's another good reason to make sure you arrange your currency in good time. Online services usually deliver next day and charge up to £5 for registered post. Some banks have a minimum order of £150 and almost all companies have a maximum limit of £2,000 worth of currency.

Credit cards

Using credit cards abroad can be expensive, with providers adding on a surcharge, typically 2.75% as well as a fee of around £1.50 if you use ATMs. Another drawback of taking out cash on your credit card is that you start paying interest the moment you withdraw it - the 56-day waiting period applies only to purchases.

There are a few credit cards that stand out for overseas spending. Three of the best are the Nationwide Building Society, the Comic Relief credit card and Lombard Direct credit cards which impose no currency loading for overseas purchases. Also competitive for transactions within Europe are Saga and Liverpool Victoria credit cards.

'Anyone using a Nationwide FlexAccount debit or credit card will not be charged any foreign usage fees,' says Nationwide's Stuart Bernau. One other thing to watch out for is dynamic currency conversion, where an overseas transaction is converted into sterling before being charged to your card. The exchange rate will often be unfavourable. 'Ask to be billed in the local currency.' Bernau advises. This also avoids any currency exchange mark-ups by the retailer.

If you have the fun of dealing with more than one currency, you need to be alert. In the Maldives their local currency is pegged to the US dollar. A shop billed 800 dollars to my card instead of 800 Rufiya - around 12 times more expensive. They sorted it out but only after I spotted the error.

Debit cards

Where possible, use your debit card to pay for purchases as any handling fee is likely to be cheaper than withdrawing cash every time. One option is make larger, rather than smaller withdrawals but make sure you can keep the cash secure.

If your debit card carries the Cirrus or Maestro logo you can use it in thousands of shops and ATMs overseas but convenience comes at a price. Most banks charge a 2.75% currency fee on debit card purchases.

As with credit cards, insist on paying in the local currency.

Watch out for hidden extras too. Lloyds TSB has introduced a further £2 fee for every overseas debit card purchase. HSBC charges £1.75, the Halifax £1.50 and Abbey added a £1 flat fee plus an extra 1.5% charge on top of the 2.75%. All of which means that debit cards are just as expensive as credit cards, and particularly pricey if you withdraw cash, although once again, the Nationwide debit card makes no extra charges for cash withdrawals.

If you are using a debit card to buy currency at the airport in the UK , you could save money by withdrawing the sterling and changing the cash instead of using your card as some foreign exchange counters charge for transacting on plastic.

Travellers' cheques and pre-pay cards

Travellers' cheques may be the safest way to travel with money but they are likely to cost you more than using plastic. The exchange rate you purchase them at will almost certainly be worse than the rates used by card companies.

There is also a risk of paying two lots of commission on them - when you buy them and again when you use them. Portugal and Spain are known to charge high commission fees for changing euro cheques - sometimes as much as 8%. Some Spanish banks require a 15 euro flat fee.

Equally, charges remain high for pre-paid travel cards, a relatively new addition to the travel money scene offered by several providers including Amex and Travelex. They offer the security of travellers' cheques - funds are replaced if the card is lost or stolen - but operate more like a debit card, allowing you to withdraw the money you deposited on the card's account via ATMs and pay retailers direct.

At the moment, issuers make charges when you set up the card, add charges on exchange rates or impose fees when you make withdrawals. They need to become considerably cheaper to give debit or credit cards a run for their money.