For British travellers in Europe this summer, the cost of everyday living is painfully high because the pound is so weak against the euro.
With a coffee likely to cost over £4 in both Paris and Barcelona, and cheapest meals for two coming in around £35, there’s a stronger case than usual for getting the best possible conversion rate on your money.
But a survey by International Currency Exchange (ICE), a long-established currency supplier, reveals that only 10.4 per cent of travellers take advantage of online exchange rates, where the best rates clearly tend to be.
One in five leave it to the last minute and change money at the airport, where they are almost certain to get a poor rate. About 15 per cent rely entirely on credit or debit cards, where providers are reckoned by price comparison service uSwitch.com to collect fees and charges worth £281 million a year.
“It is astonishing that with the current focus on making money go further, travellers are not taking advantage of the best rates and commission free deals available online,” says ICE head of marketing Andrew Hamilton.
The ICE survey found that some places can still offer reasonable value for Brits. In the past year, the pound gained more than 18 per cent against the Polish zloty, and dropped only 6.5 per cent against South Africa’s rand.
Against the US dollar, vital for nearly two million Brits bound for Florida this summer, the pound has lost 17 per cent of its spending power in a year. But in the last six months, it has rallied by 20 per cent.
The current dollar exchange rate is “advantageous” for Brits, according to David Lamb, head of treasury services at No1 Currency, Scotland’s leading currency provider. He thinks it could approach $1.80 to the pound, perhaps, near Christmas.
FairFX, a prepaid MasterCard available in euros or dollars and loaded online or by internet bank transfer, has a current rate of $1.67 to the pound.
“There may be a case to lock in at that rate,” says FairFX chief executive Stephen Heath.
“While still way below the $2 to £1 levels of July 2008, the pound has rebounded 25 per cent from the 23-year low of $1.35 seen in January this year. Getting dollars on a currency card now could get the best rate available so far this year.”
In a tight-fisted summer like this one, a prepaid currency card should have all sorts of attractions.
Like other cards, it is used to pay at shops and to withdraw money from cash machines, but cardholders can only spend the amount already loaded on the card.
Although travellers need cash for drinks, lunch and incidentals, the prepaid card is usually a safer bet on bigger items and for use at ATMs.
ICE’s Travellers Cashcard is available in pounds, dollars and euros, and is accepted at over 25 million ATMs, shops and restaurants in over 120 countries worldwide.
“As it is PIN protected, it offers better protection and means travellers avoid carrying much cash around,” says Hamilton.
There are 3.5 million prepaid cards in use worldwide. Market leader Travelex reckons its Cash Passport is the only product to go beyond the standard three currencies (sterling, euros, dollars) to include Australian, New Zealand and Canadian dollars plus the South African rand.
Earlier this month, Travelex announced it was axing fees for cash withdrawals using the Cash Passport for new and existing customers. Its 24-hour Freephone line promises to wire money in an emergency within 20 minutes, and there’s a new four-hour online pre-order service for euros and US dollars.
“Demand is increasing for prepaid cards which control holiday spending while avoiding unexpected charges and security risks associated with cards directly linked to a bank account,” says Steve O’Donovan, managing director of Travelex Europe and North America.
Thomas Cook is adopting the Travelex service for its own Cash Passport prepaid cards, covering the same seven currencies.
“We expect our new versions to be a huge hit with long-haul travellers,” says Peter Constanti, its chief executive of mainstream travel.
However, a Which? Money survey found that although three-quarters of its members knew about prepaid cards, only three per cent had bothered to get one.
Heath and his business partner Ian Strafford-Taylor aimed to bring the Easyjet low cost online model to currency conversion in launching FairFX in 2006 – now they handle £100 million worth of foreign currency a year through cards and cash.
Low costs keep their exchange rate consistently high in best buy charts; its only charge on ATM withdrawals will be the one levied by the machine owner.
Of course, saving on prepaid cards is maximised if buyers are canny enough to buy at a favourable exchange rate. Different rates apply to top-ups – by telephone or internet, debit card, and sometimes by text message or in person.
Prepaid cards also avoid foreign exchange fees on purchases made abroad, provided the local currency matches that on the card. A cross-border fee would be charged if a prepaid sterling card was used in the eurozone.
Some cards do charge fees for top-ups (Debenhams’ prepaid MasterCard charges 2.5 per cent for adding funds by credit or debit card), while others charge for calling the customer helpline.
However, few charge application fees, and FairFX claims its fee is waived in about 90 per cent of cases.
In the next fortnight or so, FairFX will issue a sterling card for use abroad. There will be no charge for ATM withdrawals, but a fee of 1.5 per cent matching the charge applied by UK debit and credit cards, could apply.
For travellers still faithful to credit and debit cards, two consistently figure among the best buys.
Abbey’s Zero card has no foreign loading fee or cash withdrawal fees, but cash withdrawals incur interest from day one.
The debit card on Nationwide’s FlexAccount promises no fees on cash withdrawals or spending within Europe, and outside Europe it incurs only the standard 0.85 per cent fee levied by VISA.