Travel Money - Buy now if you can Afford it!!

Sterling has enjoyed a strong run so far this year and has reached 5 year highs against a number of currencies in some of the more popular destinations for British tourists. The question ahead of the summer break for holidaymakers is, will this last or should they be buying their holiday cash now? Those who are cautious may want to take advantage of the rates currently on offer as they are likely to be higher now than when they bought the holiday, however there is a strong chance that sterling will appreciate further.

To illustrate these rises, in the last 12 months, the British Pound is up by 25.77% against the Turkish Lira, up 21.83% against the Brazilian Real, up 16.44% against the Australian dollar, up 20.21% against the Thai Baht, up 18.66% against the Malaysian Ringgit, up 17.77% against the Canadian Dollar, up 4.44% against the New Zealand Dollar, up 10.11% against the US Dollar and 3.87% against the Euro.

The strong UK economy relative to other major economies is providing support to Sterling with investors able to achieve a good return from buying the pound.

According to the Organisation for Economic Co-operation and Development (the OECD) UK GDP growth is estimated to reach 3.2% this year whilst America is estimated to reach 2.6%, Australia 2.6%, Canada 2.5% and Europe 1.2%. As a result of the improving economic picture in the UK speculation continues as to how soon the Bank of England will begin to raise interest rates. When interest rates in the UK do rise there is likely to be even more demand for sterling especially as this would be the first move higher by any Western nation. To date New Zealand is the only country to raise rates.

The debate on the likely date for an interest rate rise was in focus again this week following the release of the Bank of England’s latest quarterly inflation report which showed contrasting outlooks for interest rates, growth, inflation and unemployment.

It is advisable to always shop around for the best currency deal for your holiday as early as possible. Foreign exchange rates available from banks on the high street or travel agents can usually be beaten if you are prepared to pre-order by telephone or online, and the currency can even be delivered to you free of charge. The Post Office usually has reasonable rates too and also offers a Prepaid Travel Money Card if you pre-order from them on which you pay zero commission. 

The Prepaid Travel Money Card is accepted in 210 countries and also offers purchasers the ability to check the balance and top up the card via the internet, SMS, or a smartphone app. The card is used like a debit card wherever MasterCard is accepted and can also be used to withdraw currency at ATMs, although there is usually a charge for cash withdrawals. It is secure in that it has no direct link to your bank account should it be stolen.

Similar cards are available from other providers such as Travelex, Caxton, FairFX and Lebara. It is worth using a comparison site to check the various conditions, fees and charges. These cards allow you to buy foreign currency when the exchange rate is favourable as well as being flexible enough to allow you to top them up as and when the funds are available to you.

One place to avoid exchanging currency at all costs is the airport, unless it has been pre-ordered. The commission fees are extremely high at airports because they know that they have a captive audience!

It is advisable to take sufficient cash with you to cover your entire trip, as using cash machines in other countries usually incurs a surcharge and some banks charge a fee for withdrawing money in foreign countries.

Using credit and debit cards abroad to make purchases in shops and restaurants can also be useful. It is best to make these payments in the local currency, known as dynamic currency conversion, where possible. If you are given the option to pay in sterling or the local currency it is best to choose the local currency, as, even though you will know exactly how much you are going to be charged in Sterling, paying this way usually results in a much poorer exchange rate provided by the retailer than the one you are likely to receive from your card company.

It is not advisable to take out foreign currency on a credit card as most providers will charge cash advance fees as well as immediate interest which can be at a rate exceeding 20%.

If you know you will be renting a car on your holiday it is usually cheaper to make the booking early and to sort out the insurance before you leave the UK. If you are likely to rent a car abroad several times a year there are stand-alone insurance policies available to waiver excesses. It can also be expensive to hire a sat-nav system abroad or to buy one when travelling so if you already own one then it may be a good idea to take it with you.

Planned excursions whilst you are away can often also be purchased in advance from the UK in many instances. Discounts may be available for larger parties if there are a group of you travelling together.

Another way of ensuring that your travel cash goes further is to book an All Inclusive holiday. These are particularly good for people on a tight budget. Sometimes such holidays also include kids clubs and daily entertainment in the booking cost as well as the food and drink.

A final piece of advice is to always inform your bank prior to travelling abroad. If they have not been warned that you will be using your cards abroad they may well block its use in order to prevent fraud. Let them know which countries you intend to visit and for what length of time just in case your card is cloned and used after you return home. Your bank should also be able to give you a 24 hour helpline telephone number should you run into any problems with your card whilst you are away.

Darren Winters