Personally I always like to have a holiday booked so I have that in the tank to look forward to. Aside from its psychological benefits, the cost of flights two weeks ahead of a trip versus six months ahead can be vast, especially with a family.
Deciding to book a flight in a foreign currency? Watch out for a few tricks. I’m often offered the ‘guaranteed rate’ by the vendor. Guaranteed very expensive perhaps, but not guaranteed fair.
Customer service has long gone. There is no need for that as it seems vendors believe we just want to buy cheap and put up with poor service. Instead we seem to weave through countless traps set to take our money, and somehow come out the other side intact. And we keep buying from them.
Whilst this is true on many purchases, watch out for the slippy hidden costs. I don’t like to pick on Ryanair because they do have a brilliant business model, and drove that model into today’s low prices, but they don’t half make some howlers now and then.
You decide to buy a flight, which is in a different currency, and at the bottom it automatically switches you into your home currency at their rate, and it’s far from obvious how to switch back. You have to select ‘click here for more information’ (we are conditioned not to do that because it’s normally 20 pages long) and in there it recommends you DON’T uncheck a box so you receive their ‘guaranteed rate’. Yeah right!
What’s the guarantee? I checked the best rate I could achieve at the time with Torfx and sure enough the Ryanair flights would cost me a whopping 7.44% more if I bought with Ryanair’s converted price. (£74 on a £1,000 flight spend).
Imagine the difference on a major purchase if you decided to buy that apartment in Spain after a fine lunch and a few drinks.
When abroad, how do you spend? There are four obvious choices of cash, debit cards, credit cards and pre-paid cards.
Banks are happy enough if you are relaxed about how to spend. Santander made €585 million on currency transfers alone last year – and that’s just one bank.(3) That’s fine of course, if you are a shareholder of the bank you are using – you’ll get some benefit back.
It may be stating the obvious but there are fees everywhere.
The coolness of contactless debit cards is an easy mistake. Whether it’s cash withdrawals, or a spontaneous purchase, research by Defaqto showed that a daily stop in for a €5 spend would cost you €21 more in fees over the fortnight because of how debit cards overcharge.(4) Metro Bank is the only debit card that doesn’t charge such fees and widely available. Monzo and Starling bank don’t, but are just mobile app based.
I use a credit card more often than not, but mine doesn’t charge currency fees or exchange rate fees and so when asked that question ‘foreign currency or your home currency’, it’s always foreign currency – even if they now ask again with a 2nd prompt on the handset! Halifax clarity is hard to beat.
Using a pre-paid card can be clever. I tend to wait for a movement in currency after an announcement and load the card at that point with the currency I need. A card by Revolut is virtually fee-free abroad with no fees for having a dormant account, for loading cash and no service charges.
Post Office for commission free cash? Alas it might be commission free, but there are many ways to shave your cat! The rate of exchange with a currency exchange provider such as Weswap will be superior, but be sure there are no fees for smaller transactions ie less than £750.
Bringing cash back? Be sure to check it isn’t a closed currency as banks won’t take it. Having just returned from Kathmandu, where I couldn’t spend the last cash on the airport side, I am unable to take it into banks. So it’s off to visit the local Nepalese restaurant to see if I can exchange for a meal!
About the author
Peter McGahan is Chief Executive of Independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority.Last modified: June 10, 2021