Could those notes get a new lease of life?

It’s not necessarily that we’re misers or don’t trust the banks – although both may be the case. The £1.6bn – enough to cut fuel duty by 3p a litre or pay the whole bill for sending the space robot Curiosity to Mars – is leftover cash from trips abroad that we never get round to changing back into sterling.

A poll of 1,100 British travellers found that the average stash of foreign notes and coins amounted to £54 per person, in currencies ranging from Thai baht to out-of-date Cyprus pounds. The survey revealed that, despite the mandatory last-minute souvenir dash at the airport, 89% of people still return home from their holiday with foreign currency left over.

Now, of course, exchanging money can be expensive, what with fluctuating exchange rates and commission. So it makes sense to keep small sums – especially coins, which banks generally won’t change back into sterling – until our next trip. But, unbelievably, one in three of us forget to take our stash with us next time, adding to the accumulated foreign cash.

So, how you can you avoid bringing extra cash back – and if you do, what can you do with it?

The obvious thing is to work out your budget and don’t buy more than you need. It is actually possible to go to some foreign destinations and not take any foreign currency at all – although that’s probably not advisable, as you’ll probably need to buy small items such as coffees and postcards with cash. The secret is to use your plastic.

Depending on where you are going – and you need to do your research before you go – you can probably put most of your spending on a credit card, and end up with little or no currency left over. Of course some holiday destinations, such as many of the Greek islands, don’t accept cards, so you’ll have to carry cash. But if you are taking city breaks or going to popular resorts such as Spain your credit card is your friend.

If you use a card such as the Saga card, which does not charge you exchange rate loading, you’ll end up saving money, too, compared with the cost of changing cash. Even if you do find you need cash you can get some from a local ATM. The Saga Platinum credit card doesn’t even charge you interest on cash withdrawals as long as you pay your bill in full and have no balance outstanding from the previous month.

A word of warning: if you don’t have a Saga card, check your card’s terms and conditions, as not all cards are the same and you could be charged exchange rate loading and interest on ATM withdrawals, making card payments an expensive option.

While we’re on the subject of plastic, prepaid currency cards can be convenient but can be expensive to use and don’t beat a “best buy” credit card. You “load” these cards with currency before you travel, but like exchanging foreign cash you can load them with too much, and it can be expensive to get your sterling back again. The alternative is to leave the currency on the card for the benefit of the card company until you travel abroad again. Unlike foreign currency notes, you can’t even give the money on a prepaid card to a family member if they are travelling before you do unless you apply for a second card. Pre-paid cards don’t give you the same consumer protection that credit cards do.

So, what if you really do want to take cash? Above all, shop around for the best deal, and don’t wait until you get to the airport, where the exchange rate is invariably worse. If you are using a postal or home delivery service make sure the dealer is authorised by the Financial Services Authority and has safeguards for your money in place, such as keeping the clients’ money and the business’s money in separate accounts. Foreign exchange is not covered by the Financial Services Compensation Scheme if things go wrong.

If you do come back with spare currency that you are likely to use again, keep it with your passport so you remember to take it next time. If you are not returning to your last holiday destination, try converting your leftover currency into the currency of your next resort. While you might have trouble changing Thai baht into Croatian kunas, you shouldn’t have trouble changing dollars into euros within eurozone countries and vice versa – saving the cost of a switch back into sterling and out again.

If you have just a few low-value notes or coins left over that you feel sure you won’t use again, consider putting them in the charity box at the airport. You can also hand them in at high street charity shops, which will aggregate the money and exchange it for sterling to spend on good causes.

The same goes for many out-of-date currencies, such as pesetas and German marks, which can only be exchanged into legal tender (i.e. euros) at the relevant countries’ central banks. Do note, however, that some old European currencies, such as lire and French francs, are no longer exchangeable anywhere. But charities will probably be glad of them to sell as collector’s items.

* Read Annie Shaw's money articles every month in Saga Magazine.