Forex hacks for expats and travellers can make a huge difference to the cost of spending abroad, but few have the knowledge to make managing their money pay.
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Independent financial monitor Defaqto has lifted the lid on the cheapest and most expensive ways to spend in a foreign country to help smart travellers make their money stretch further.
The most surprising conclusion of the study is probably the revelation that credit cards are the cheapest way to spend abroad, while making small payments on a debit card can rack up a fortune in charges that come to a lot more than the purchases are worth.
Prepaid cards are not always as cost-effective as they seem, as they can come with high charges and hidden fees.
And the top tip – if you are paying by card, always choose to pay in the local currency to avoid massive conversion fees.
Credit cards are cheapest way to spend
“Surprisingly, credit cards have emerged as the hero of holiday spending,” said a Defaqto spokesman.
“Credit cards can be as cheap as cash and they provide holidaymakers with consumer protection relating to anything purchased between £100 and £30,000. An evening meal costing €25 could cost travellers between £0.46 and £0.68 when using their credit card. In comparison, the same payment using a debit card could cost between £0.40 and £1.88.
“Analysingthe whole market reveals that the most expensive way for travellers in Europe to spend is by using their debit cards, particularly for small payments. Add to this, the convenience of using contactless, and Brits in Europe could very quickly find their holiday budget blown.”
As an example, Defaqto explained buying a daily €5 breakfast of coffee and a croissant over a fortnight break could end up costing a £21 in charges on top of the €70 spent on your breakfast – that’s £86 on breakfast or £6.14 a day.
Costs of spending in Europe
Using exchange rate of £1 = €1.10 for credit and debit cards
| Euro Spend | Cash | Lowest cost | Average cost | Highest cost | ||||
| High Street | Banks | Debit Card | Credit Card | Debit Card | Credit Card | Debit Card | Credit Card | |
| € 5 | £0.12 | £0.22 | £0.08 | £0.09 | £0.45 | £0.11 | £1.50 | £0.14 |
| € 10 | £0.24 | £0.44 | £0.16 | £0.18 | £0.54 | £0.22 | £1.50 | £0.27 |
| € 25 | £0.61 | £1.10 | £0.40 | £0.46 | £0.82 | £0.55 | £1.88 | £0.68 |
| € 50 | £1.22 | £2.19 | £0.80 | £0.91 | £1.29 | £1.09 | £2.50 | £1.36 |
| € 100 | £2.45 | £4.38 | £1.59 | £1.82 | £2.34 | £2.19 | £3.75 | £2.72 |
| € 250 | £6.08 | £10.95 | £3.98 | £4.55 | £5.58 | £5.48 | £7.81 | £6.81 |
Source: Defaqto
Note: These costs include all currency exchange fees, debit card and credit card fees. The lowest costs are for those cards which apply charges – some cards do not charge. Full details can be found in the tables below. The cost of cash is calculated based on the difference between the Visa and Mastercard daily rate and the average of high street retailers and major banks.
How cards work abroad
If you make a credit, debit or prepaid card payment abroad, most banks charge a fee to convert the payment from the local currency to sterling.
The fee varies with the provider, but generally, banks charge more than currency exchangers likeThomas Cook, Sainsbury’s, or Tesco.
Some providers charge extra fees for debit card payments or cash withdrawals.
Debit Cardsare costly to use overseas. Defaqto says 11 current account debit cards come without fees, but only the Metro Bank card is widely available and free.
Spending with a debit card in Europe
| Total fees (where charged) | € 5 | € 10 | € 25 | € 50 | € 100 | € 250 | € 500 |
| Minimum | £0.08 | £0.16 | £0.40 | £0.80 | £1.59 | £3.98 | £7.97 |
| Average | £0.45 | £0.54 | £0.82 | £1.29 | £2.34 | £5.58 | £10.96 |
| Maximum | £1.50 | £1.50 | £1.88 | £2.50 | £3.75 | £7.81 | £14.62 |
| Using ATM Machine in Europe | |||||||
| Total fees (where charged) | € 50 | € 100 | € 250 | € 500 | |||
| Minimum (where charged) | £0.80 | £1.59 | £3.98 | £7.97 | |||
| Average | £2.42 | £3.65 | £8.32 | £15.07 | |||
| Maximum | £3.36 | £4.72 | £11.03 | £21.63 |
Source: Defaqto
Spending with credit cards
Spending with a credit card is easy overseas. Most retailers will accept them and the card comes with the security of knowing purchases between £100 and £30,000 are protected.
But never draw cash from an ATM with a credit card as the provider will add charges and interest from the moment you take the money.
Spending with prepaid cards
The selling point of a prepaid card is you can only spend what you have loaded and no interest charges are added.
But the hidden fees can add to purchase costs, including renewal and loading fees. The exchange rates can be less advantageous than those charged on other spending methods.
If you plan to hire a car or buy fuel at a petrol station, be warned that many retailers will not accept them because they cannot pre-authorise payments.
Cash is not always king
The downside of cash is having to carry a large amount of money with you, but you can buy travel insurance that covers the theft or loss of cash.
Making small purchases in a bar or for a taxi is easy, buy foreign exchange charges can be expensive.
Avoid changing money at airports – the rates are extortionate.
Buying Euros at home and taking them as cash is considered best, because currency sellers say that they don’t charge commission, but the exchange rate at no-commission outlets is around 2-3% less than the rate for credit or debit cards and works out about the same as spending on a card.
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