What’s the cheapest way to spend money abroad?

Paul Lewis / 21 July 2015 ( 07 January 2019 )

All sorts of things make holidays expensive – the price of a beer, the cost of eating out, buying presents for the family. And these can all be made more expensive by the cost of using foreign currency. So what is the best – by which I mean the cheapest – way to pay for things abroad?

Taking cash

It is, of course, a good idea to take some cash. You do not want to arrive and find you have no local currency for a coffee or a cab. But do not take more than you need, and always buy it before you get to the UK airport or the train station. 

Once there, you are a captive audience so the rates will usually be dreadful. And pay for it with notes – using your debit or credit card can be expensive.

On the high street, look at Post Office and some high street retailers can be very competitive, or your own bank may also change currency. 

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Remember, you can haggle. If you do not like the rate offered – and you know it is better somewhere else – say so and see if they will do you a deal. 

There will usually be a better rate for buying more currency than you want or need. So try to get that rate for the amount you want.

Closed currency countries

When you are travelling to some countries, you cannot buy their currency in the UK before travelling. In those cases, take sterling with you and change it when you arrive, but convert as little as you need. The airport will probably be an expensive place to buy it, but you may have no choice.

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If you have cash left over at the end of your trip, try to spend it – perhaps paying your hotel bill partly in cash and the rest on a card. If you do bring some foreign currency back to the UK, do not convert it back to pounds unless you can guarantee you will never need that currency again. The margin between the buying and selling rate is wide. Keep it in a drawer and take it out next time you visit, especially with euros as you can use them in more than 20 countries.

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Using plastic abroad

Visa and MasterCard convert hundreds of millions of pounds every day into dollars, euros and other currencies. That means they get a very good exchange rate – always better than you will get when you buy foreign currency in the UK. So paying abroad with your own card should get you the best rate for your pounds. But, and it is a big but, not all plastic is equal.

If you use your credit or debit card the wrong side of the UK border, the bank or card provider is likely to whack an extra charge of up to 2.99% on what you spend. This extortionate ‘foreign usage loading’ is hard to avoid. Only a handful of card providers do not add it on. So a few weeks before your trip, do your research and apply for one of them.

Do check and see if they charge for cash withdrawals as they do in the UK, and be aware that some will charge a small amount of interest on the cash withdrawn until you pay the card bill.

In all cases, you should pay off your credit card in full each month as that will save you money. These cards also cut the cost of buying things from other countries over the internet. In addition, using a credit card offers you extra protection under Section 75 of the Consumer Credit Act (s75) if you buy something that goes wrong.

Read more about Section 75.

Using debit cards abroad

Debit cards that do not charge a foreign currency loading are harder to find. Again, do your research before you go and remember that to get a debit card you will need to open a current account with that bank or building society and fulfil its rules, which may be difficult.

On other debit cards you will have to pay the foreign loading charge of up to 2.99% and a fee of up to £1.50 each time you use it abroad – and sometimes more if you use it in a cash machine. In some countries the local bank will charge you for cash-machine use. There is nothing you can do to stop that.

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Currency cards

The latest way to take money abroad – often called a replacement for the traveller’s cheque – is the currency card. This is a pre-paid card that you ‘load’ with money in the currency of your choice – usually dollars or euros – before your trip, and then use it to pay for things when you are abroad. Currency cards normally use the MasterCard network. They are a useful way to make sure you do not overspend, but they come with drawbacks.

First, the exchange rate you get when you load them is not the Visa or MasterCard rate you get when you use a credit or debit card abroad. However, it will usually be as good as or better than the high street rate for cash.

Second, if you have money left on the card at the end of your trip, it can be expensive to recover it. You can keep the card for your next trip, but do not leave it too long as it will expire if you do not use it for a year or two.

Third, some cards charge you for adding on more credit. So if you run out while you are away and want to re-credit your card, you may end up paying a fee to do so. If you lose the card, there will almost certainly be a fee for replacing it.

All these charges – and there are more with some cards – mean that currency cards have their place. But if you can get a fee-free credit card, that is usually a cheaper way to pay – and you get section 75 consumer protection, which does not apply to currency cards.

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Paying in sterling?

In many shops in Europe you will be asked if you would like to pay for something in euros or sterling. Normally you should say ‘euros, please’ and use your new foreign-usage-free credit card. If you opt for the familiarity of sterling, you will get a poor exchange rate through the retailer’s bank, rather than the better rate obtained by Visa or MasterCard.

However, if you have not managed to get a card with no foreign usage loading before your trip, then you may find choosing sterling is cheaper. If you pay in sterling, you will avoid the foreign-usage charge and the fee that some debit cards add on. But it is a fine calculation as to which is cheaper.

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The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.