Since the recession struck, the value of the pound against other currencies has plummeted. We are seeing a  it of a revival now, but for all of those on tight budgets, getting the cheapest foreign currency possible is a must.

Don’t be fooled by high street claims of commission free currency – the profit is built in to the price you pay overall. The only way to get good value foreign currency is by being savvy and planning in advance. We’ve got the cheapest ways to spend abroad whether you like to put it on plastic or want hard cash. Read on for all the insider info.

• Avoid massive credit and debit card charges abroad
• Lock in your rate and protect your money with a travel money card
• Get back to basics with travellers cheques
• Get the best travel insurance deal before you go.

Hard cash – cheap foreign currency

First things first – do not buy your foreign cash at the airport. Last minute currency purchases will cost you big because they know you cannot go elsewhere to get a better rate – there’s no competition.

You should also try and steer clear of your tour operator – it’s so convenient that many are tempted to go for it, but you always pay for convenience – their rate won’t be as good as one you could get elsewhere.

If you are organised and think ahead, the cheapest place to get your currency is online. You can compare rates without trekking around the high street and then have the cash delivered to your door. Online outlets have fewer overheads and therefore can, on the whole, offer you better rates than on the high street.

Buying online

The one drawback of buying currency online is paying for delivery. This has to be by courier as they are carrying sums of money and so it’s usually around £6 for delivery. However if you are ordering a lot of currency (usually upwards of £500) you can get it delivered for free.

You can sidestep delivery charge if you order online with Travelex. You can arrange to pick up your currency from your local bureau de change for free and they have an online guarantee to give you the best price on foreign currency – if you find a better deal elsewhere they’ll refund you the difference.

On the high street

Most providers on the high street now offer commission free currency exchange, we like Marks & Spencer especially. If they don’t, get it elsewhere.

First Choice and Thomson will match or beat any exchange rate you can find in the same area so if you do get down the shops to buy your foreign cash, keep that in mind.

Remember – the best way to get the best deal is to shop around. The strength of the pound is very unsure at the moment and exchange rates are fluctuating daily which means prices offered can really vary between different bureau de changes.  Which? spokesman Dan Moore says, “no one bureau de change – including M&S and the Post Office – consistently offers the best exchange rate. You are probably best checking your local high street provders, and your bank, and seeing whether any will beat the competition.”

Cheapest credit cards to use abroad

Using credit cards abroad can cost you big. This is not usually because of the exchange rate offered – these are usually dictated by the Visa/Mastercard wholesale rate and so are by and large competitive. However your bank will then slap on fees and charges on top of this that can make spending on your card abraod seriously pricey.

What fees are there?

• Loading fees – this is the — travelmoneycreditcardl not defined — (this can vary) of the transaction that is added on as a fee for using your card abroad.

• Cash machine charges – again these are a percentage of the amount you withdraw but there’s often a minimum charge per withdrawal of no less than £2. You have to remember that you will not only be paying this, but you’ll also start paying interest on the cash you withdraw as soon as it’s in your hand. The interest rate for cash withdrawals is often a lot higher than your normal APR, so if you can avoid them, do not make withdrawals on a credit card abroad.

• Spending fees – these are flat rate charges that some banks make you pay per transaction.

Get out of paying them

If you want to use a credit card abroad the only way to avoid the fees is to get one tailored specifically for those spending abroad. The best one on the market is the Santander Zero card, simply because it is the only one that does not charge if you want to make cash withdrawals from an ATM. It also doesn’t have extra charges on any foreign transactions. However, although it’s free to make the cash withdrawal, you will be paying 27.9% APR on the amount which is a hefty interest rate. If you can avoid it, don’t withdraw cash with a credit card abroad at all.

Other cards that offer cheap foreign transactions are:

Post Office credit card - free on foreign transactions, but charges a 2.75% handling fee on all cash withdrawals (minimum £3) and the APR on cash advances is 24.10% APR.

Nationwide credit card – free on transactions within Europe and then charges a low 1% fee on transactions outside of the Eurozone. Cash withdrawals come with a 2.5% fee (minimum £3) and the interest rate on them is 27.9% APR.

Saga credit card – only for over 50s, but if you can get it you won’t pay for foreign transactions within the Eurozone and outside you’ll only be charged 0% of the transaction value. Cash machine withdrawals are as ever charged; you’ll pay 2% of the amount you get out (minimum £2, maximum £50 – imagine paying £50 just to get money out!). The interest rate you’ll pay on the cash withdrawal is 19.6% APR.

No matter what card you’re using, you’ve got to watch out in case the foreign ATM you choose charges a fee as that will be on top of all other fees levied by your home bank.

Debit card alternatives

If we’re talking debit cards, the situation is pretty much the same.In fact, it’s worse because, unlike credit cards which almost always charge you to withdraw cash using them,  in the UK you can get free cash withdrawals using debit cards. Abroad it’s a different story.

Most debit cards will charge you a withdrawal fee and on top of this a conversion and transaction fee. The conversion charge is usually a percentage of the transaction value and the transaction fee can either be a flat fee or a percentage charge.

For example: a debit card from Halifax will charge you a 2.75% conversion charge and then a flat rate transaction fee of £1.50 for each time you use it. So if you either take £100 cash out, or spend £100, you’ll actually pay £104.25. Just over £4 might not seem like much, but these charges add up quickly.

Cards that don’t charge (as much)

Nationwide Visa debit card which comes with a flex account – This again gives you free foreign transactions in Europe and charges 1% of the transaction value outside the Eurozone.

For cash withdrawals the card doesn’t charge everywhere. In most European countries it’s free to make cash withdrawals and also in other places – see the list here. One of the biggest places it still charges in is the US and amongst others are Australia and Canada.

This is by far the cheapest debit card. Others on the market will charge either a conversion or transaction fee.

Travel money cards

Many card providers have twigged onto the fact that people are not so happy about paying these charges and have introduced prepaid credit cards especially designed for travel.

These are Visa or Mastercards that work just like any other debit or credit card, except you have to pre-load them like mobile phones. Another difference is that you can get ones that only function in another currency – so a card especially for US dollars or Euros.

One useful characteristic is that these cards are not linked directly to your bank account. So if your card is stolen, the most you stand to lose is the balance on your card. Keep this modest, and your losses won’t be too significant.

The other and main advantage of these cards is that the best ones do not charge for foreign transactions – that’s the whole point. For those that do, the charges can be less than using a debit or credit card. But if you’re going to get a card especially for travel you should stick to the ones offering free transactions.

But, the ones that have free transactions do often try to squeeze in charges elsewhere – for example when you are loading the card with cash you may have to pay a fee, so you need to watch out.

If they are all free how do I choose?

First you’ve got to look at the charges – we’ve listed the cards that don’t charge for foreign transactions below and put details in of all the charges they do make you pay.

Then you need to look at the exchange rates they are offering. These cards make a lot of their money in what is called the spread of the exchange rate – so the difference between the rate at which they buy the foreign currency on the wholesale market and the rate at which they sell it to you. It’s like any normal product – a shop will buy their products from a wholesaler and then mark up the price and sell it to you. With these cards, some of them will add more on to the rate that they buy from the wholesaler than others. Sometimes this mark up is called a foreign currency fee and other times it isn’t named.

This spread is how all bureau de change make money, so it can’t be avoided. However if you look at the rates on offer when comparing the cards that have fewer charges, it will give you a guide as to which to go for.

Which are the cheapest travel money prepaid cards?

Caxton FX

In terms of charges, the Caxton FX Global card is the cheapest. It’s free to buy (they will take a £10 deposit when you apply and then add this to the balance once you get your card), there are no transaction fees, annual or maintenance fees and no charges for withdrawing cash from ATMs.

They will also charge £5 for a replacement card if you lose it or any additional cards you want attached to the same account (two cards can access the same balance).

This card is for all currencies and the conversion will be done at the point of purchase rather than at the time of loading currency on to it - sign up for one here.

Other options:

Travelex Cash Passport – This card is effectively a plastic version of travellers cheques. It comes in three versions; the Travelex one, the Thomas Cook one and the Co-operative Travel one all of which can be loaded with seven different currencies – US dollars, Euros, Australian dollars, South African Rand, GBP, New Zealand dollars and Canadian dollars.

All are free to use for purchases abroad but, as long as you buy the card direct from Travelex, there is now no charge to use a cash machine. The fees to put money on the card for the Travelex and Thomas Cook versions vary depend on where you load it up/buy it – For the Co-operative Travel card it’s free to top up in Euros and dollars but for sterling you’ll pay a 2% load fee.

If you buy it online from Travelex, the minimum load you can do is £100, but with the Co-operative and Thomas Cook versions you only have to top up £30.

Currency specific cards

Some travel money cards are specifically for use in one country or currency area, like the US or the Eurozone. The advantage of using one of these cards is that the exchange rate you will get is usually more competitive than you would get when using a standard travel money, debit or credit card abroad.

For these cards the exchange rate is fixed when you load the card, as the balance will be shown in the currency of the card. Even if you load £50 onto it, your balance will show up in Euros or US dollars. So, even if the exchange rate goes down, you’ve already got the money on the card at the higher exchange rate and you’re laughing.

Caxton FX, FairFX and the Post Office all do these cards. They tend to have big charges for using them outside the currency their are in (so using the dollar card in Europe), but as long as you stick to the currency area they can be a good dea

Bread FX Euro Prepaid Mastercard

The Bread FX Euro Prepaid Mastercard has the best rates amongst currency cards. You can only load it with Euros so it’s perfect for anyone going on a holiday in Europe.

• • Purchase fee: It’s free to sign up.
    • There is a minimum initial load of £100.
    • The minimum load after this is £20.
  • Transaction fees:
    • In Euros are free
    • In other currencies a €2 fee applies
    • An exchange fee of 2.5% of applies to all non-Euro transactions.
  • ATM withdrawals:
    • In Euros are charged at €1.50
    • In other currencies are charged at €2, along with the 2.5% non-euro transaction fee
  • Loading fee:  It’s free to load.

• FairFX currency card

This one officially  costs £9.95 to buy unless you load it with €10 or $20 through clicking this link (then click on the tab travel extras, and select prepaid currency cards). When you buy it you can choose whether you want it to be a Euro or Dollar card.

Foreign transactions are free when using the card and there are no monthly service or loading fees (unless you load with a credit card and then it’s 1.5% of the amount you load). It’s also free to use in the UK.

They will, however, make you pay a £1 flat fee when you get cash out abroad. Replacement cards are £6. FairFX say on their website that they offer business exchange rates to individual meaning their rates are more competitive than anything you would get on the high street. They have a strong reputation as a wholesale currency dealer and so it’s definitely worth seeing if you can get more foreign cash for your sterling with their currency cards.

• Post Office dollar and Euro cards

Unlike their sterling card you don’t have to pay anything to load the Euro or Dollar cards, but the minimum initial load is £50. If you use the card to buy in a different currency to that on the card, you’ll pay a 2.75% transaction fee. It will also cost you £1.50 to use a cash machine and they say that you may have to pay a cross border fee of 2.75% on top of that too – but not everywhere. If you want to cancel the card before its expiry date, you’ll have to pay a £5 redemption fee.

• Lloyds TSB Travel Money card – Euros or dollars

This card will cost you £7.50 unless you’re a Silver account holder and they’ll also charge you for cash withdrawals ($2.50 for US dollar card and €2 for Euro cards) and if you use the card outside of the currency it’s in there’ll be a charge of 2.75%. The card is valid for two years and there is a £5 re-issue fee but other than these charges, the card is free to load and use abroad.

• Moneycorp Prepaid Mastercard – Euro and dollar

The Moneycorp Euro and Dollar cards are free to buy with a £25 minimum load. They’ll charge you €1.50 or $2 (depending whether you’ve got the Euro or dollar card) to make a cash withdrawal but all transactions within the currency on the card are free. It’s also free to top up as long as you use a debit card – credit card loading incurs a 1.5% fee. The card lasts for three years, you can cancel it whenever you like but the prevailing exchange rate will apply.

• Ice travellers cashcard

These guys offer a sterling, dollar and Euro card all of which are free to buy and you can get a supplementary card for free. However, with the sterling card you’ll pay 2% to top up, so it’s probably better to go for their Euro or dollar card whichhave free top ups and free transactions in the currency on the card. Cash withdrawal is charged on all the cards: you’ll pay £1.75, $3 or €3.

Other foreign currency products

Travellers cheques

Yes, these are the most retro form of travel money but they are still going strong. Travellers cheques are cash with a built in security policy. They each have a unique ID so if you lose them or they are stolen, you phone up American Express and they will replace them for you pretty much anywhere in the world, usually within 24 hours.

Depending on where you purchase travellers cheques, you might pay a fee to buy them. For example, at the Post Office you can buy all currencies of travellers cheque (there are five – american, australian, canadia dollars, Euros and sterling) but if you buy sterling ones (to exchange in whatever country you go to) you’ll pay a 2% charge.

When it comes to cashing them in there aren’t any fees as long as you do it at any American Express fee-free partner. AMEX make their profit by charging the retail outlets that sell them (like the Post Office) so you won’t pay upfront to get them.

When you are cashing them in, with a fee-free partner or without, you should always check the exchange rate. Some outlets offer much lower rates than others – for example it’s much better to cash them in at a bank than in a hotel.

Watch out for Dynamic Currency Conversion!

Be careful when you’re using your credit or debit card – you may be asked if you want to pay in the local currency or in pounds sterling.

This is a service called dynamic currency conversion (DCC) and it’s becoming increasingly popular in Europe, so there’s every chance you will be offered it on this year’s holiday.

Basically, if you choose to pay in pounds the retailer will convert your payment (instead of your card provider) which means they’re free to apply a poor exchange rate. You could end up paying a scary 4% more in extra fees!

So, when you use your cards on holiday (including getting money from an ATM) always opt for local currency. Your bank may still make you pay a conversion charge, but a retailer abroad will probably charge you much more.

The best way to stick to a budget

• Only take cash with you.

Leave the credit cards at home (apart from one emergency one which you do NOT touch unless desperate – to get home, not for another bottle of Sangria).

• Work out before you go away how much you can afford to spend…

…then take it out in cash. It’s a great way of budgeting because you can physically see it dwindling through the holiday, and it really concentrates the mind.

Just remember that if your cash gets lost or stolen, you have no redress – once it’s gone it’s gone! So keep it in the safest place you can and only take some of it out with you each day.

• Get a good travel insurance deal.

On the subject of being safe and secure, make sure you get the best travel insurance deal before you go – a one year policy will probably be the best value if you go away more than twice a year.

DON’T get lumbered with the over-priced policy your tour operator will try to sell. There’s a lot of competition on the market, so shop around online for the best value.

Useful sites:

Check out these sites and sign up to save money:

• The Post Office
• Marks & Spencer
• Travelex
• First Choice
• Caxton Mastercard
• Abbey Zero

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