8 min read

What’s the best way to spend when you're abroad?

Andre Spiteri
27 July 2017

How do you make the most of your money while on holiday abroad? Cash or card? Credit, debit or prepaid? We discuss the pros and cons of each.

If you're heading abroad for a winter break you're going to need some spending money. It’s been a rocky year for the Pound so far, with the value of the Pound falling since the start of the year, getting the most for your money is even more important. So what's the best way to pay when you're abroad?

Option 1: Paying in cash

Local cash is probably the easiest (and cheapest) way to spend abroad, because:

  1. You won’t be charged any transaction fees

  2. It’s accepted everywhere

That said, cash also has its downsides:

  • Carrying large amounts of cash around is pretty inconvenient and not particularly safe.

  • If you need a less frequently used currency, you may have to order it in advance.

  • Finding the best exchange rates can be difficult and time consuming.

The deal you get will largely depend on the exchange rate - the value of the pound compared to the foreign currency.

The exchange rate changes regularly as the value of the Pound goes up and down nearly every day. The good news is, that the value of the Pound has been getting stronger over the last couple of months. But exchange rates can still vary a lot between providers. The fairest exchange rate possible is the ‘mid-market rate’, or interbank rate. This is the exchange rate used by banks and other traders when they buy and sell currency between each other. However, the general public are typically given a less favourable rate, as banks and foreign exchange bureaus want to make a profit.

Here are a few tips to help you get the best deal on foreign cash:

  • If you’ve booked your trip some months in advance, it’s worth monitoring the exchange rate using a tool such as XE.com’s currency monitor. That way, you can buy foreign currency when the rate is more favourable.

  • Shop around. For best results, use a comparison tool such as Compare Holiday Money or FXcompared.com.

  • Avoid exchanging money at airports and hotels - they usually have the worst rates.

  • If you want to withdraw cash from an ATM when you’re abroad, always do it in the local currency. This guarantees the mid-market rate. However, your bank may charge ATM fees and foreign transaction fees (more on this later).

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Option 2: Using credit and debit cards abroad

If you don't want to pay for your whole holiday in cash, you can use a credit or debit card. These have some distinct advantages:

1. Credit and debit cards are typically safer than cash

Credit and debit cards offer you more protection if they're lost or stolen, as you can easily cancel them and identify any fraudulent activity.

2. They are more convenient

You pay for things as and when you buy them, leaving you with less leftover cash to use up at the end of your holiday.

On the downside:

  • You can run into acceptance issues. Card machines can often be temperamental. While cards are usually widely accepted in tourist hotspots, smaller merchants and those outside busy areas may only take cash. Make sure to carry some cash for emergencies.

  • They can also be expensive to use. Credit and debit cards tend to charge a fee on every foreign transaction, usually around 3%. Most will also charge an ATM withdrawal fee.

Credit and debit cards for travel:

Not all credit cards and debit cards charge expensive foreign transaction fees. There are cards designed specifically for travel which don’t charge any fees at all:

Credit cards especially for travelling include the Zero credit card from Santander and the Aqua reward card, both of which don’t charge any foreign transaction fees. Virgin Money’s Travel Credit Card also has no foreign transaction fees and it also offers 0% interest on purchases for 12 months. So you could use this card to pay for your holiday in the first place and spread the cost interest-free.

You can find credit cards that you’re eligible for in the Offers section of your ClearScore account.

Debit cards that don’t charge foreign transaction fees include cards issued by Metro Bank (Europe only), Starling Bank and Norwich and Peterborough Building Society.

To make the most of these savings, always perform transactions in the local currency. This ensures you get the best exchange rate available.

Credit cards vs debit cards: which is better?

  • Debit cards are better for ATM withdrawals. Just like when you're at home, withdrawing cash with your credit card will start attracting steep interest rates immediately.

  • Credit cards are generally better for purchases. Credit card payments between £100 and £30,000 are protected under section 75 of the Consumer Credit Act. You have a right to a refund if something goes wrong.

Option 3: Prepaid cards

Prepaid cards work just like credit and debit cards. However, they have two main advantages:

1. They’re safer

Prepaid cards are not linked to your bank account. Instead, you top them up with as much cash as you want. This means you stand to lose less should your card be lost or stolen.

It’s also much easier to stick to your budget and control your spending.

2. They’re cheaper

Foreign exchange specialists like Travelex and Caxton have travel-centric prepaid cards, as do new entrants to the market like Revolut and WeSwap.

You can usually hold several different currencies on the same card, which means you only need to deal with the exchange rate once. With most of these cards, you also won’t be charged foreign transaction fees or ATM withdrawal fees.

Of course, prepaid cards aren’t perfect, either:

  • They don’t necessarily offer the best exchange rate. To date, only Revolut offers the mid-market rate. The exchange rates on other cards can vary.

  • Limits apply. For instance, WeSwap charges £1.50 if you withdraw less than £200. By contrast, Revolut charges a 2% fee if you withdraw more than £200 in a month.

  • Paying a deposit can be tricky. Hotels and car rental agencies sometimes charge an amount to your card as a deposit. Many won’t accept a prepaid card for this. If they do, you may have to top up again to keep using your card.

In a nutshell:
  • Local cash is normally the easiest way to pay abroad. However, you’ll need to shop around for a good exchange rate.

  • Unless they’re designed for travellers, credit cards and debit cards are usually expensive to use abroad. Avoid withdrawing money with a credit card, as this can attract steep fees and interest.

  • Prepaid cards are usually safer and cheaper than traditional credit and debit cards. However, they may not be accepted everywhere.

  • Always pay in the local currency, whenever you use a credit, debit or prepaid card. This usually gives you the best exchange rate.

by Andre Spiteri

Andre is a former lawyer turned financial writer. Andre has written this article especially for ClearScore.

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