Sterling rule: shop around for best deal

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The pound hitting $2 recently is the clearest sign of sterling’s strength for holidaymakers.

But while Brits have been enjoying greater spending power in many overseas destinations in the last few years, travellers can also make their holiday pounds go further by shopping around for foreign currency.

An FT mystery shopping exercise found currency deals varying by up to 7 per cent between different bureaux de change and banks in London.

Someone changing £200 into dollars for a holiday in the US could have received between $368 and $396 for their pounds – a difference of $28 – according to this snapshot (see below). Translating £200 into euros might have yielded between €270 and €291 – a difference of €21.

Of the outlets surveyed by the FT, bureau de change shops in Queensway, central London, gave the most currency for £200, taking into account commissions and charges as well as exchange rates.

High street banks and bureaux de change at airports were generally the worst value. Both the Post Office and American Express, despite charging no commission, did not offer particularly good deals.

Martin Lewis of money advice website Moneysavingexpert.com says: “No commission and fee-free deals normally just mean the exchange rate has been loaded (made worse).”

Equally, what may look an attractive exchange rate could turn out to be a much worse deal once any commission and charges are included. The effect of such costs can also vary depending on the amount of currency you buy. So to make reliable comparisons, the key question to ask any bureau de change is how much currency you will get – after all charges – for the amount of sterling you have.

Moneysavingexpert.com says that online services generally beat the high street, while buying at the airport before you fly tends to give the worst deal. The website will shortly launch an online calculator for finding the best currency deal from a range of internet services. Among these is Travelex.co.uk, which allows holidaymakers to order currency online (at a better rate than in its bureaux) but pick up at their departure airport. It also offers an ostensibly useful “price guarantee” which refunds the difference in cost if you find a better rate.

But while it can be worth having some currency for arrival in a foreign country, increasing numbers of holidaymakers are recognising the convenience and – in many cases – cost advantages of using credit and debit cards when abroad.

Credit cards will generally work out to be a better deal for overseas spending than paying with foreign currency, once rates and charges are taken into account – and assuming you pay your bill promptly.

And the best plastic cards used in a foreign cashpoint will also give a better currency deal than that offered by any of the bureaux de change FT Money surveyed.

Withdrawing currency from an ATM with a credit card will often incur interest as well as other charges. But using a debit card means you won’t pay interest on the withdrawal (unless you are overdrawn) and in the case of Nationwide’s Flexaccount debit card there are also, unusually, no other charges.

Compared with the results of our mystery shop, this means that Nationwide Flexaccount cardholders could have achieved a dollar exchange rate of $1.99, equivalent to getting $399.40 for £200 from an ATM withdrawal in the US. That contrasts with an exchange rate of $1.94 from Barclaycard and just $364 for £200 once interest and charges from using this credit card in a cashpoint are included.

“Both the cheapest and most expensive ways to spend abroad are on plastic,” says Lewis, adding that while the best-value plastic cards trump other forms of holiday spending or currency withdrawal, users do need to watch out for a raft of card charges.

Most plastic cards load the underlying exchange rate on all overseas transactions by a typical 2.75 per cent. Most also levy a cash withdrawal charge for taking currency out of a foreign cashpoint. And some debit cards even make a charge on overseas purchases – £1.75 in the case of Halifax, which can work out particularly expensive on smaller transactions.

Lewis says the difference in cost between using the best and worst plastic cards abroad is around 7 per cent, although it could be as high as 20 per cent for someone making lots of small purchases on a debit card charging a transaction fee.

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