Buying currency for regular trips can be complicated and often costly. Maggie Squires reports on the best way to deal with foreign exchange
Between prepping meeting materials, packing the bare essentials into our hand luggage and scanning a map to see if any nearby volcanoes are due to erupt, it’s no wonder that changing money for a trip is often left until the last minute. But forward thinking and a little research is crucial to finding the best deals.
Plan ahead
Before you even open your wallet, you should take time to plan how much money you’ll need. Unless you are exchanging to a currency you will use again, you should avoid buying too much or you will lose out when you change it back as the transaction is made at a different rate (see the panel overleaf for when buy-back is worth it).
Equally, you need to exchange enough to avoid withdrawing cash (and being charged a fee) from ATMs when abroad. Check with your bank to see how much you will be charged and you will see rates vary widely. Nationwide is usually one of the better options as it does not charge commission on withdrawing foreign currency while abroad, but it may charge 1 per cent on each cash withdrawal or transaction for processing certain currencies – generally those outside the European Economic Area, but not Turkey or Israel.
Barclays, on the other hand, will charge you a 2.75 per cent foreign exchange fee every time you use your debit card for purchases and withdrawals abroad, plus an additional 2 per cent transaction charge (minimum £1.50, maximum £4.50) if you withdraw cash overseas via an ATM or in a bank. So if you were to take out €100 from an ATM in France, Barclays would charge about £4 for the privilege.
The convenience of changing money at the airport can be tempting, but this is one of the most expensive options as it is a “distress” purchase – charges are high and rates unfavourable. Airport bureau de changes are also inconsistent with their offerings. On one day in three different UK airports the rate of exchange can vary as much as 3 per cent, even with the same provider.
Even the airports themselves recommend you change your money before you arrive. A statement on Birmingham International airport’s website reads: “While changing your money in hotels and airport exchanges is convenient you will probably pay very high transaction charges. These options are best avoided, experts advise, unless you are left with no other choice.”
Guy Anchor, news editor for moneysavingexpert.com, agrees. “The key message is don’t go to the airport and ignore high-street retailers,” he says. “Also, your high street bank, not always but often, gives pretty derisory rates compared with what you can get with specialists and travel companies.”
So how do you get the best deal? For the large proportion of business travellers who organise their own foreign exchange, the majority would be wise to order their currency in advance and in bulk. Most foreign exchange services offer this facility, including the Post Office, Marks and Spencer, Travelex and Amex. Some of them deliver to your office or home or to an airport desk when you buy over a certain amount. But they are not all equal.
Travelex will deliver commission-free currency to your home or the airport free, while American Express offers commission-free exchanges to businesses but will only deliver to your office – although soon the company is looking to combine with the Travel Money Now service, where you can pick up your currency at Heathrow, Edinburgh and Glasgow airports.
One of the benefits of using a corporate foreign exchange service such as Amex is that they can get their clients better rates as they regularly order large amounts of currency. Terry Perrin, American Express’s director of wholesale currency services, says: “In terms of the rates we apply it depends specifically to each client, how frequently they travel, what their spend is and how many orders they place. We can put limits around what [individuals] order and companies can track that.”
Who offers the best deal?
Most currency services have an online offering that will have better rates simply because they are not paying for a high-street office, but the foreign exchange service you choose will often depend on convenience – if the Post Office is next to your office, you’ll be less likely to traipse across town to secure a better deal.
However, you should watch out for services that claim to be commission-free – you may think you have outsmarted the system but these often cost more (although the Post
Office does tend to offer decent exchange rates). Anchor says: “You need to look at the overall cost, which is the exchange rate plus the commission. So what you’re actually asking is: ‘How many dollars or euro am I getting for my pounds once all the fees have been taken into account?”
Equally, watch out for so-called “deals” with affiliates. British Airways has teamed up with Travelex so Executive Club members can earn miles when they buy currency through travelex.co.uk/ba. Here you’ll get one BA mile for every £5 spent up to £110, one mile for every £3 spent from £110 to £225 and one BA mile for every £1 spent at £225 or over.
While this might sound tempting, at the time of going to press, the site offered an exchange rate of US$1.4 to the pound, so for £100.23 you would get US$141 plus 20 BA miles. But when Business Traveller checked the normal travelex.co.uk website on the same day at the same time, US dollars were 1.46 to the pound. So you could either receive US$141 plus 20 BA miles (you need 9,000 for a European zone one flight) or US$146.50 for £100 – US$5.50 more and no miles.
Credit cards
As with debit cards, a lot (but not all) of credit card companies will charge you a foreign exchange fee on transactions in a foreign currency. Moneysavingexpert.com’s Anchor recommends the Santander Zero credit card. “A lot of credit and debit cards charge you a hidden foreign exchange fee, which is normally up to 3 per cent of the value of whatever you’re buying. The Santander Zero credit card does not have this 3 per cent fee,” he explains.
Nationwide credit cards can also be used charge-free in Europe, Turkey and Israel. The Post Office Classic card, with a typical rate of 16.9 per cent APR (compared with Santander’s 18.9 per cent), is commission-free for purchases made abroad. However, withdrawing money on a credit card is always a mistake as it incurs high fees.
Prepaid cards
Prepaid currency cards with companies such as Fair FX, Travelex, Currencies Direct, Caxton FX and the Post Office are becoming more and more popular. Anchor says: “People’s credit ratings are not quite as good as they used to be, so not everyone can qualify for top credit cards. This might be the time when prepaid cards come in quite handy.” Once you have loaded your prepaid card with your chosen currency, you can easily keep track of your budget and if you lose the card your personal bank account is not at risk as the two aren’t linked. You can also top up online and often avoid paying exchange fees.
Alex Tejada, head of business solutions at Currencies Direct, which has recently launched a prepaid euro Mastercard, says: “Some banks charge you for every transaction when you use your debit card abroad, as well as applying very high conversion rates. And now it is almost mandatory to contact your bank before you travel to advise them that you will be using your card abroad. If you forget, most banks will block your card. With a Currencies Direct prepaid euro Mastercard you never have to do that – it’s meant to be used abroad.”
However, these cards are currency specific – typically, euro and US dollars – so are only worth using in countries that use those currencies. For example, pay for a meal in Switzerland with a euro card, or use it to withdraw Swiss francs from an ATM, and you will be charged a second conversion rate and incur a transaction fee, usually 2.75 per cent. You should also be wary of loading fees (the Post Office charges 1.5 per cent for this) and ATM withdrawal fees (Currencies Direct charges €1.25, or 2.5 per cent in any other currency)
TOP TIPS
• Notify your bank that you’re going abroad – you don’t want to end up dealing with a frozen account. Prepaid currency cards do not have this issue.
• Try to withdraw what you need for the trip so you don’t have to pay to change it back into your local currency.
• Try to find a good balance of multiple forms of currency. You don’t want to carry too much cash in case you lose it but you will need enough for transportation and tips. Cashpassport.com, a product of Travelex, has a budget calculator that can recommend what percentage of your currency you should have on plastic and in notes. It also gives you average local prices for a hotel, meal, drink and public transport so you can gauge how much to take.
• Don’t be fooled by ads for commission-free currency exchange. Often rates have been inflated and they can cost more than the companies that charge commission.
• All foreign exchange companies offer different rates. For example, as we went to press, widely used exchange rate website xe.com showed the mid-market rate for the euro to be about €1.18 for £1. However, at the Post Office it was €1.14 and at Marks and Spencer it was €1.12. Travelmoneymax.com searches currency exchange specialists in the area and finds some of the best rates at that time. It also provides the location and says if there’s a fee for delivery.
• Think of prepaid currency cards as being like budget airlines. If you can avoid all the loopholes and extra charges, they can offer a good deal.
• Moneysavingexpert.com’s Guy Anchor says: “If you’re always going to the same country or you’re in the eurozone, you could get a savings account in that particular currency. Then when you’re withdrawing money, you do as a local would – without all the extra fees.”
IS PAYING FOR BUY-BACK WORTH IT?
? A number of companies offer this service, including Travelex, which charges £3.99 to buy back currency at the same rate as you bought it, and Thompson for £3.95 – but only up to £200 worth of currency. You should also factor in commission.
? If a Travelex shop is selling US$1.37 for £1, £500 gets you US$685. Change that total back and you get £496 (minus the £4 buy-back). Travelex will charge a different rate to convert US dollars to pounds without the guarantee – for example, US$1.66 to the pound, which means without the buy-back fee you get £412 – so the service has saved you £84 (minus any commission).
? As a guide, paying for buy-back is only worth it if you are taking a lot of cash in a currency that you are unlikely to use again. If you bring back a quarter of the dollars you took with you, according to the above exchange rate, buy-back would save you £22. But note that more obscure currencies may not be eligible.
