As children finish up at school for the summer, the traditional August holiday season will see many families hit the continent, away from the political turmoil at home.
But while many may be hoping to escape any discussion of Brexit, it will be impossible to get away from the impact of the 2016 vote on sterling and how many euros they get for their pound. Towards the end of July 2015 – the summer before the Brexit vote – £1 bought €1.43. Last week £1 got just €1.12.
So what should holidaymakers do to ensure they get the most for their money before flying to the continent?
Avoid the airport
If buying currency before you travel, the first rule of thumb is to get the money before you go to the airport, where rates are notoriously bad. Analysis by the MoneySavingExpert website showed savings of £150 could be made by someone buying €1,000 from the most competitive currency exchange compared with at an airport. The survey found consumers would pay £891.82 – including fees – if they went for the best option and collected the money themselves. To walk up and buy €1,000 at Moneycorp in Gatwick airport would cost £1,045.70, according to MoneySavingExpert.
Debit-card debt
The dramatic rise in contactless transactions has led to the closure of about 300 cash machines a month, as people increasingly use debit cards for smaller payments. But doing the same abroad can be expensive. Research by financial information company Defaqto found that making small payments using a debit card was the most expensive way to pay. This is because many debit cards levy a non-sterling transaction fee – typically under 3% – as well as a purchase fee.
“On a lot of debit cards, it would be extortionate to spend small amounts of money abroad,” said Brian Brown of Defaqto.
“A lot of cards have a minimum fee or a percentage charge, plus a fixed fee, so it is quite possible that with some providers you could pay €5 for a coffee on your contactless debit card, but get charged a £1.50 fee. If you are doing lots of little spending and are used to using your contactless debit card, you need to be aware that using it abroad can be really expensive. Unless you know exactly what your bank does, you should try and avoid using debit cards for paying.”
Credit it
It may sound counterintuitive, but a smarter way to pay for everyday items can be by using a credit card. Unlike some debit cards, they do not have a fixed minimum fee. In the case of a €25 evening meal, the cost would be between 31p and 66p for using a credit card, according to the Defaqto research.
“You should, if anything, use a credit card, which may sound perverse but is true,” said Brown. “That is because credit cards don’t have a minimum fee. They don’t have a flat fee, they just charge a percentage cut of a transaction. You can make small payments on a credit card and only pay a 3% fee, for example.”
The most important thing to remember is credit cards are only a viable way to pay if they are paid off in full, otherwise interest costs will wipe out any savings made.
An added bonus is that if there is a problem with an item purchased between £100 and £30,000, there will be protection under section 75 of the Consumer Credit Act, which makes the credit provider jointly liable with the retailer.
What consumers should avoid doing is taking out money from a cash machine using a credit card as most providers will charge interest from the day of withdrawal. Taking out cash on your credit card is seen as a bad way of borrowing money and could affect your credit rating if done too often, Brown added.
Challenger benefits
New arrivals in the banking market are offering fresh options for tourists. Monzo, which is popular with the under-30s, allows the withdrawal of £200 a month for free. After that, you will be charged a 3% fee. Payments in shops and restaurants are free of charges. Revolut offers a free current account with a card that customers can use overseas in more than 150 currencies with no fees. They can also withdraw £200/€200 per month free from ATMs, or £400/€400 per month if they sign up for Revolut’s £6.99-a-month premium account.
Meanwhile, prepaid cards allow customers to load the currency of their choice and only spend that amount, topping up when needed via an app. But many of these cards have high fees, according to Defaqto, and cannot be used for car hire. Difficulties can also be experienced using the cards in petrol stations.
How would you like to pay?
When taking money out of a cash machine on the continent, the question that frequently comes up on screen is – do you want to pay in euros or sterling? A similar question arises when paying bills – and the answer, according to MoneySavingExpert’s Martin Lewis, is always to pay in euros.
“When using a card, if you are asked whether you want to pay in pounds or in the local currency – for example, euros – always say the local currency. The same almost certainly applies with US dollars when in the states or other currencies elsewhere,” Lewis said in a blog.
If you pay in euros, your UK bank does the conversion for you. If you opt to pay in pounds, the foreign bank does the currency conversion – a practice known as “dynamic currency conversion”, which offers a less favourable exchange rate. The charge is often 4% more than it would have been and is on top of any normal fees.
The best option
Having a combination of payment types was the best option for travellers, said Brown. He recommends taking some cash and shopping around before you fly abroad to get the best exchange rate. When overseas, a card from a new player, such as Revolut, can be used with a credit card as backup. It is good to have a second card for just-in-case scenarios.
Rachel Springall of Moneyfacts said the tipping culture of a country could affect the amount of cash you would need to carry. Tips in Spain are 5% as standard but in the US, they are between 10% and 20%.
Being prepared means you will avoid rip-off rates and heavy fees. “One of the golden rules of gathering spending money is not to leave it to the last minute,” she said.
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