You’ve checked your passport is valid, bought travel insurance and packed your beachwear. But changing pounds for cash in the currency of your destination has fallen down your to-do list. The good news is you need not pay over the odds in foreign transaction fees, or a huge commission on currency exchange at the airport.
Big banks such as Lloyds, TSB and Halifax charge as much as 2.99 per cent on card transactions abroad, which works out at nearly £30 on every £1,000 spent. But there’s a range of banks that don’t charge any such fees and it takes minutes to open an account with them.
This doesn’t have to affect your existing bank accounts, although you may be offered a juicy bonus if you switch your current account to a new provider. In some cases you can use the new digital card within minutes of setting it up via the bank’s smartphone app.
Here are the best cards for holiday spending, who they suit – and what to watch out for when making payments abroad.
Best bank overall for travellers
First Direct has zero fees on overseas spending and cash withdrawals using its debit card, and the £250 interest-free overdraft it offers is useful in an emergency.
The bank also gives those prepared to switch their current account a £175 bonus. But a switch takes seven working days and it may take more than a month to get the bonus.
You’ll get instant access to your current account when approved and a virtual card to use straight away. First Direct says that 99 per cent of customers receive their physical card within six days.
The bank is well-rated for customer service. In the latest survey of banking customers produced for the Competition and Markets Authority, 74 per cent said they would recommend First Direct to friends and family – placing the bank fourth for overall quality.
Rachel Springall, a finance expert at rate scrutineer Moneyfacts, says First Direct’s customer service is ‘high standard, with 24/7 phone support, so that should give customers peace of mind if they run into any problems’.
Big banks such as Lloyds, TSB and Halifax charge as much as 2.99 per cent on card transactions abroad – but there’s a range of banks that don’t charge any such fees
Best pre-paid card for exchange rate
When using your usual debit or credit card abroad, you normally get Mastercard or Visa’s exchange rate depending on your bank’s preferred payment network.
These are set once a day at a fraction above the rates stated by the European Central Bank.
The rates offered by the two card providers tend to be similar. For example on July 28, Mastercard would have converted £1,000 to €1,170.55, while Visa would have converted the sum to €1,173.53, not factoring in any bank fees. This is a difference of €2.98.
But you can also use something called the interbank rate – the live rate at which banks exchange currencies. As this is a real-time rate, this can sometimes work out better than the rates set by Visa and Mastercard.
Investment platform Trading 212 offers a pre-paid card that uses the interbank exchange rate. You’d need to spend thousands to notice any savings but the main benefits of Trading 212’s card lie elsewhere. There’s no foreign transaction fee in using the card abroad and you can withdraw up to £400 a month in cash for free.
You can also earn 3.8 per cent interest on your cash. It costs £4.95 to have a physical card delivered. The virtual card is free and can be used immediately once you open an account.
The number one rule with exchange rates is to avoid using airport services to switch currency at the last minute.
And when faced with the choice of paying in pounds or the local currency at an ATM on your trip, experts say choose the local currency. This swerves an expensive mark-up from a foreign bank.
The best credit card for travel
Credit card providers charge as much as 2.99 per cent on foreign transactions. Some levy an even higher fee on cash withdrawals, such as 3.99 per cent with a Tesco credit card – on top of a 2.75 per cent foreign exchange fee.
If you need to take out £500 in the local currency, using this card to do so would cost you £33.70.
You can find credit cards that don’t charge either of these fees.
One top pick is the Lloyds Ultra Credit Card. There are no foreign transaction or cash withdrawal fees, plus you can earn a good 1 per cent cashback on all card purchases in the first year.
The interest rate is a relatively low 14.9 per cent on purchases but this is a representative rate that not everyone receives. You should get your card in five to seven working days and Lloyds says you should see your card details in the app in ‘just a few days’ – from there you can use it digitally by adding it to Apple or Google Pay.
A couple of pointers with credit cards. When it comes to cash withdrawals, unlike the grace period that you have to clear your balance on purchases, interest is charged from the moment you have the money in your hands.
When applying for a credit card, you should check eligibility first. It won’t affect your credit history.
Holidaymakers also benefit from additional protection if they buy with a credit card. Any goods or services not received which are valued between £100 and £30,000 are covered under section 75 of the Consumer Credit Act.
With the Lloyds Ultra Credit Card, there are no foreign transaction or cash withdrawal fees
Best app-based bank for travel
Digital challenger banks such as Chase, Monzo and Starling have become popular with travellers because they don’t charge foreign transaction fees.
They’re app-based so it takes a matter of minutes to open an account on your phone and you can usually start using your card straight away by adding it to your digital wallet. However, there are usually restrictions on how much cash you can withdraw.
Starling offers more flexibility on taking out money. You can withdraw up to £300 and make up to six withdrawals a day. Chase lets you withdraw £500 a day but has a £1,500 monthly limit when abroad. You can withdraw £400 fee-free every 30 days in the UK and Europe with Monzo’s standard account. There’s no restriction if Monzo is your main bank.
Kate Steere, from comparison website Finder, says: ‘If you’re after a slick app with genuinely useful budgeting tools like Spaces for saving for your holiday and Settle Up for splitting expenses, Starling is the one to go for.’
When withdrawing cash, try to keep costs low by finding ATMs operated by local banks. You’ll often be charged a flat fee but this can be lower at these branches.
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