Foreign currency: With sterling down against the euro and US dollar, here's how to make your holiday money go further this summer

Will Railton
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Sterling may have taken a dive since Brexit, but a pre-paid currency card allows you to lock in a foreign exchange rate when it's looking most favourable (Source: Getty)

Unless you’re holidaying in South Africa, Brazil, Russia or a number of other countries whose currency has fallen more steeply than sterling this year, you should brace yourself for considerable increases in the cost of hotel rooms, car hire and dining out.

Market uncertainty around Brexit has led sterling to fall against a basket of other currencies, including the euro and the dollar.

If you didn’t have the foresight to buy foreign currency in advance of the referendum, here are some tips for mitigating the costs by avoiding unnecessary charges on spending abroad.

Pre-paid cards

Pre-paid cards are similar to travellers cheques. They work like debit cards in that they can be used to spend and withdraw cash overseas.

If you’re thinking of buying a pre-paid card, keep an eye on the exchange rate as soon as you’ve booked your holiday, to make sure you lock in the most favourable rate.

Many pre-paid cards come with no set-up fees, running costs or charges for transactions, and are a safer alternative to walking around with cash which might be lost or stolen.

Read more: Private jet flights from China to Europe soar as sterling falls to Earth

TravelSupermarket’s Bob Atkinson recommends Caxton FX’s currency card, which does all of the above and comes with no charges for cash withdrawals. “Fair Fx’s card also has no running costs, although it does have a small charge to take money out of a hole in the wall. However, that is offset by generally better exchange rates,” he says.

Credit cards

If you aren’t going on holiday within the next two weeks, it could be worth applying for a travel credit card. Designed specifically for use abroad, these cards avoid all the charges you would usually pay when you use a normal credit card on holiday. These include a non-sterling transaction charge of around 3 per cent, charges of up to £2.50 for cash withdrawals, interest charges which are incurred regardless of whether you pay off the balance in full, and other penalties.

“Additionally, they will take the market exchange rate and through currency loading give you a worse rate than the spot rate of the day,” says Atkinson. “The result? You could be paying an average of 5-6 per cent more for the privilege of using your card. And on small ATM withdrawals of £20, that’s as much as 12.5 per cent more.”

Most travel credit cards will still charge you for withdrawing cash abroad, but Halifax’s Clarity Mastercard is an exception, and won’t charge you either at home or when you travel.

If you have a poor credit rating, Aqua Advance is a good option, although the interest is higher and free daily cash withdrawals are capped at £100. Cards from MBNA Everyday Plus, the Post Office, Nationwide and Creation Everyday are also worth considering.

There is a catch. These cards won’t charge you interest on spending abroad, but they will on ATM withdrawals (18.9 per cent representative APR on Halifax Clarity, 7.4 per cent for MBNA Everyday) even if you pay off the balance in full. However, this interest will stop accruing once you have paid, so there is still an incentive to pay off the balance as soon as you can.

Debit cards

Changing your bank can be a real hassle if you’re just after a card to use abroad. But Norwich & Peterborough’s Gold Classic charges nothing for withdrawing cash abroad. To avoid the £5 monthly fee, customers need either a balance of £5,000 or monthly deposits of £500 – which could be transferred from your main current account and then returned.

If you’re travelling to the Eurozone, Metro Bank’s current account charges nothing for loading forex or withdrawing cash, although charges do apply elsewhere in the world. Atkinson also recommends Travelex’s new Supercard which links to one of your existing cards using an app and provides “superb exchange rates”.

Read more: Six of the best challenger banks

“Now fully launched after a trial period last year, this is excellent for overseas spending making it as good as Halifax,” he says. “However, its new charges for ATM use make it one to avoid if you want cash from a hole in the wall.”

This article appears in the July edition of City A.M.'s Money magazine, which will be distributed with the paper on Thursday 14 July.

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