You’ve booked the holiday and sorted the travel insurance; got your suitcase out of the attic and dusted it off; eyed up and bought a new pair of shorts with an elasticated waist for all the food you’re going to eat and now you’ve remembered that you need to sort out some cash. Do you load up with local currency or simply grab a credit card?
Cash – pro’s and con’s
I love foreign currency. There’s something about having paper money that looks different to your normal currency that makes a holiday even more special isn’t there? Where can you be a millionaire? Travel to South Korea where £700 will buy you over one million South Korean Won! What holiday is complete without having to stand at a stall or supermarket trying to work out whether 300 Japanese Yen is expensive for a loaf of bread? That trip to the pyramids for 1,000 Egyptian Pounds – what’s that in real money? Is it a bargain?
Having cash is great for bartering. If you love local markets, cash talks. You can haggle to your heart’s content and grab yourself some real bargain souvenirs.
Do you struggle to budget on holiday? Taking cash means you have to stick to a certain amount every day or you’ll go hungry later on!
But when should you buy your currency? You just know the minute you purchase those Euros that the rate will improve and had you waited another week or two, you could have got more for your pound. But if you don’t buy now, you just know that the rate will drop and in two week’s time you’ll be cursing that you didn’t go for it right now! Argh! Who needs this stress before they go on holiday?!
Firstly, forget the stress. Over the last year, the Pound has been fairly stable against the Euro even with all the Brexit palaver going on. If you bought £100 worth of Euros at the lowest rate, you would have 110 Euros vs 117 Euros if you bought them at the best rate. How about US Dollars – $126 vs $143… So unless you are looking to take a lot of cash with you, don’t worry too much about the rate.
Of course, the big downside to taking cash is the risk of it being stolen. Once it’s gone, it’s gone and even with travel insurance, you may find yourself stuck in a foreign country with no money.
Credit Cards – pro’s and con’s
A safer way to spend abroad is to take a credit card. If it gets stolen, you can stop it quickly by having an app on your phone which also means you can monitor how much you are spending relatively easily. If someone spends on it before you stop it, the credit card gives you some protection against fraudulent use and of course, the money hasn’t come directly out of your account.
Also, that trip you wanted to go on but hadn’t budgeted for before you left? No problem!
The major downside to credit cards is that they can charge between 2.5% and 3% for each transaction. That $100 dinner is now $103 and over a period of two weeks, that could really add up!
If a credit card is your currency of choice, make sure you get one that doesn’t charge for use abroad. Have a look at http://www.moneysavingexpert.co.uk or http://www.moneysupermarket.co.uk for the latest deals. Some credit cards don’t charge for getting cash out of an ATM either – win win!
Best of Both Worlds?
Can you really have the best of both worlds? A number of companies offer a card you can pre-load with currencies of your choice. Booked that once in a lifetime trip to Australia? Use pound-cost averaging by saving regularly onto a pre-loaded card to avoid the panic of buying the ‘wrong’ rate. What the heck is that I hear you say? Well, I’m glad you asked.
Pound-cost averaging relates to the overall cost of buying something in instalments. So when I buy currency, I have a choice of buying it in one go or I could buy it in instalments over a period of time. Let’s say I want to buy £1,000 worth of Australian Dollars, if I had bought them all in one go on 3rd December 2018, I would have had AU$1,730 at an exchange rate of £1 to AU$1.73.
Now let’s say I decided to buy them over 4 months at £250 per month. In December, I would buy AU$432.50 at a rate of £1 to AU$1.73. In January, I would purchase AU$460 at a rate of £1 to AU$1.84; in February I would get AU$450 at a rate of £1 to AU$1.80 and in March, AU$467.50 at a rate of £1 to AU$1.87. If you get the calculator out that means that for my £1,000 I’ve now got AU$1,810. That’s AU$80 more in this example than if I bought in one go in December (or conversely AU$60 less than if I’d bought them all in March) so – unless you have a crystal ball and awesome physic powers – it takes some of the stress out of buying currency and let’s face it, it’s easier to budget monthly than to suddenly find £1,000 in one go for most people.
Now you have a pre-loaded card with Australian Dollars on which, if you pick the right card, will have no fees for use in Australia or for withdrawing from an ATM. The cards have a PIN and as long as you take the same care with the card as you would when you are at home – protecting your PIN and looking at the ATM for devices/being careful who’s watching over your shoulder – then you are good to go.
So which should I take?
Our recommendation – take both. That way you get the advantages of both with the back-up and security of having a card. However, as Martin Lewis would say, make sure you are able to pay it off IN FULL when you get back and you won’t get any interest charges. Then you can get on with saving for the next trip!
Not sure if you would be approved for a credit card? The Experian Credit Score gives you an idea of how lenders may view you. It reflects your credit history, which companies look at to help them decide if you’re a reliable borrower. You can check your score for free – the higher it is, the better your chances of borrowing money at the best rates. It’s based on your financial behaviour, so you have the power to change it.