If you have taken a holiday recently then you have probably noticed that travel, like pretty much everything else, is sure getting expensive these days. It seems that the era of £20 Ryanair return flights is over never to return, and that even the bargain ‘bed, breakfast and booze’ trips to Benidorm no longer leave us with much change from £500.

Well there are reasons for this. Year on Year, travel IS getting expensive because every aspect of it is touched by the serious and unrelenting inflation that has plagued global economies for nearly 4 years now. The price of fuel is up on account of the war in Ukraine, the costs of accommodation are spiking as the world lurches towards a universal housing crisis, and then global insurance markets are at a two decade high for complex algorithmic reasons that us mere mortals struggle to understand.

With the average trip becoming 10% more expensive in 2024, intrepid travellers are looking closely at ways to save some pennies on their trips abroad for many that means paying closer attention to matters of travel money than they previously might have done.

In this post we will explore the cheapest and most effective ways for travellers to manage their money while abroad. We’ll look at the benefits and drawbacks of using bank cards overseas, credit cards, and cash exchange. Whether you’re a seasoned traveller or planning your first international trip, we reckon they’ll be something in here you’ll find useful.

Travel Money and Foreign Exchange

Before we dive into the finer nuances of travel money, we will quickly explain how foreign currency exchange works generally.

Foreign currency exchange, (also known as Forex or FX) entails trading one currency for another at an agreed-upon exchange rate. These rates fluctuate based on supply and demand in the global market. Exchange rates are highly dynamic and are influenced by a number of factors, including economic indicators, interest rates, political (in)stability, and market speculation.

You have probably noticed that exchange rates can change each day. For example, today the GBP to EUR ‘market rate’ is £1 = €1.17 but over the course of a two week vacation in Greece, that could quite easily shift by 5% either way.

At a consumer level, whenever we go to change currency, we are buying one currency and selling another. It is therefore important to remember that currency traders (whether at the airport, online or at your destination) are not incentivized to offer you the ‘market rate;’ as they need to make some profit from an exchange transaction. Instead they all offer their own rates, which can be anything from 0.5% to 10% adrift of the market rate, and effectively keep the difference as profit.

It is important to note that the fundamentals of foreign exchange underpin all travel money matters in some form or another.

Using Our Bank Card Abroad

Using our bank cards to make purchases and withdraw is second nature so it is almost instinctive that we would want to use it when travelling abroad. And of course, the wonder of the modern banking system ensures that your bank card will work pretty much anywhere on earth with the small exception of a handful of “sanctioned” countries (like Iran, Russia and Cuba). However, as many travellers know all too well, doing so can prove painfully expensive.

Whenever we use our bank card outside of our home country, our bank charges us an overseas transaction fee. This fee can be a fixed amount or it can be a percentage of the transaction amount. As banks set their own fees, they tend to vary between banks but in the case of Halifax and Lloyds, the fee is 2.99% of the total value of the transaction amount PLUS an additional £1.50 if the transaction is an overseas ATM withdrawal.

Unfortunately, it doesn’t stop there either. We have already explained how foreign exchange works, and when we use a bank card overseas we allow our bank to set the exchange rate using whatever rate it wishes. Banks generally apply a markup of between 3% – 5% depending on the currency which means that when we use our bank card overseas, we are being charged 3% – 5% above the market rate for the currency.

Let’s bring this to life with a quick example

Imagine we are in Greece and want to withdraw €100 at a local ATM. We check on XE that is £85.81 and so we would expect our bank account to be debited for £85.81.

However;

• Because of the mark up our bank charges us £88.38 for the €100.
• The bank charges a fee of 2.99% on £88.38 which brings it to £91.02.
• They then apply the £1.50 ATM fee, meaning the transaction has now cost £92.52.
• Finally, it is highly likely that the local ATM will also charge a fee that could range from €2 – €3.

It all adds up to the transaction costing nearly £10 – that’s over 10% of the amount we are actually trying to withdraw.

Using Credit Cards Abroad

Credit cards are very popular among travellers and yet in many cases, they work very similarly to bank debit cards in that transactions are processed in the local currency and then converted to your home currency by the card issuer at the current exchange rate, chosen by them. Transactions often also include a foreign transaction fee typically ranging from 1% to 3% of the purchase amount.

While some credit cards are aimed at travellers, and offer better exchange rates or zero-transaction fees, it is important to check the terms and conditions before using one abroad to ensure that it is in fact cost effective.

Personally, we do not advise using credit cards abroad unless it offers some form of incentive such as airmiles, low fees or competitive exchange rates.

Some prominent travel friendly credit card providers in the UK include the Halifax Clarity Credit Card, Barclaycard Rewards, and the Santander Zero Credit Card. Additionally, premium cards like the British Airways American Express and Virgin Atlantic Reward Credit Card provide good opportunities to collect air miles.

Point of Sale

Note that whenever you use a bank or credit card to make a payment overseas, the merchants may ask if you want to be charged in the local currency or your home currency.  Choosing the local currency usually offers a better exchange rate and avoids additional conversion fees from Dynamic Currency Conversion (DCC) services.

Specialised Travel Cards

One sometimes useful travel money hack is using specialised travel bank cards. These are basically prepaid debit cards which travellers load money onto and then use them at their destination.

As the heir and successor to travellers cheques, the primary advantage of these cards is that they allow travellers to control and limit their expenditure. They are also good for security in that if they are lost or stolen then the damage is minimal.

However, some of them also offer favourable exchange rates (favourable compared to the high street banks that is) as well as useful extras such as no-fee card payments or low-fee foreign ATM costs.

Fintech’s

It is worth pointing out that the fintech, money transfer provider Revolut offers a pretty good travel card which allows zero-fee overseas ATM withdrawals. Just bear in mind that Revolut are not FCA licensed so do not offer the full raft of deposit and fraud protection that other financial services providers do.

Monzo also used to offer this but has begun scaling this back and the limit is now set to £200 per month.

Next, the money transfer provider Wise (formerly TransferWise) also now offers customers a debit card which travellers can use when overseas. While it does not include zero-fee ATM withdrawals, Wise does allow account holders to open multi-currency accounts and hold balances in a number of foreign currencies. This can be very useful for locking in good exchange rates and avoiding point of sale currency exchange costs. As we can see on CompareMoneyTravel Net, Wise’s exchange rates are very competitive.

Cash

Another way to handle travel money is simply to bring cash from home, and change it at your destination. This can actually prove to be the most cost effective way to change and spend money abroad.

Firstly, by paying in cash we avoid card fees and the risks of dynamic, point of sale conversions. Furthermore, money changers (although not the ones in airports…) often offer some of the best rates available for cash exchanges.

If you are prepared to shop around, barter, and change large amounts for leverage, you can sometimes secure an exchange rate at an on-location bureau that is very close to the market rate.

The only drawbacks are the time it can take to execute the trade (visiting 10+ kiosks to barter for rates can prove time consuming) and of course the risks of carrying large sums of cash need no introduction. It is therefore very important that you take steps to properly secure any cash you take abroad at all times.

The Dangers of Travelling With Cash

One danger of travelling with a large amount of cash is that you may be asked to declare it upon arrival at customs and effectively pay taxes on it. However it would have to be an especially large amount for this to be an issue.

The greater danger is losing the cash or being robbed. Some steps to take to reduce this include placing GPS luggage trackers in all bags, spreading  the cash hidden inside multiple different bags and using a travel safe. When out and about in the destination, travellers should engage in the classic espionage of wearing a money belt and leaving a few notes inside their wallet as a “robbers tax”.

Finally, bear in mind that most travel insurance policies will not cover lost or stolen cash.

Final Thoughts

As we have shown in this digital age, bank cards and credit cards offer unrivalled convenience and security. But they do  come with hidden fees and some very unfavourable exchange rates. Whilst swiping your card abroad may seem straightforward, it’s crucial to be aware of foreign transaction fees, dynamic currency conversions, and ATM withdrawal charges that will quickly add up.

Conversely, exchanging cash before you travel or at your destination can help you avoid some of these fees, but it also comes with its own set of challenges, including shopping around to find the best rates and ensuring you carry enough money without risking loss or theft.