Say adios to the costa far too much

Holidaymakers beware: what you save on your cheap flight, you could lose on cover, currency deals and credit cards, warns Esther Shaw

Whether it's to Cuba, the Costa del Sol or the Canaries, Britons are now preparing en masse to take off on their summer holidays. This month alone, five million people are expected to join the exodus from the UK.

Savvy sunseekers will have shopped around for a bargain flight or hotel, but there are other ways to make sure that you're not spending over the odds on essentials.

Follow these simple steps to prevent your summer break from breaking the bank.

Travel insurance

While it will be easier, and quicker, to buy cover from the company selling you the holiday package, you'll nearly always get a better deal elsewhere.

Insurer Churchill reports that, as a result of arranging a policy through their travel agent, around 11 million holidaymakers waste £546m a year by paying up to twice as much for cover as they need to.

To check the entire market for competitive deals, visit a price-comparison website such as www.insuresupermarket.com.

As a rule, the basic level of protection you should expect in a travel policy is cover for medical ex- penses (with a potential payout of £2m minimum), cancellation (£3,000), lost baggage (£1,500) and personal liability (£2m).

If you travel abroad several times a year, you will be better off with annual cover instead of a single policy. And check for free travel for children under 18, too; the Post Office and Insureandgo both offer this.

If you intend to do activities such as jet-skiing or bungee jumping, you may have to pay a higher premium since many insurers consider these high risk.

Also watch out for "free" credit card travel cover; eligibility for a new Barclaycard offer in September counts only if you book your trip through its travel services arm.

And don't rely on free accident insurance on credit cards; this will cover you only if you're hurt en route, not when you're at your destination or for theft or any other loss.

The E111 form

Many families rely on the E111 when they travel in the European Union or to Switzerland. But this is no substitute for travel cover, says Jo Field from American Express. It entitles you only to free or low-cost medical treatment with conditions that arise while abroad.

The form is available from post offices but it is being replaced next year by the European Health Insurance card.

Currency

Leave this purchase until the airport or hotel at the other end and you're unlikely to secure a competitive deal.

Only half of consumers shop around for their currency, says financial analyst Moneyfacts, and this makes little sense when some providers charge up to 2 per cent commission (with a minimum of £5 payable) plus a handling charge of more than £5.

Many outlets no longer charge commission - American Express, Travelex and the Post Office, among others - but not every deal is what it seems. Commission-free packages can often mask poor rates of exchange, warns Paul Swainson from Travelex.

"Consumers need to look at the total cost of the purchase, including commission, exchange rate, handling fee [and delivery of their money to your home, if applicable]."

A recent survey by Travelex of both high-street outlets and websites found that the cost of changing £300 into euros varied by more than €8 (£5).

You should also use a provider that allows you to change, commission-free, your leftover foreign cash back to sterling.

While it's a good idea to have some local currency - preferably in small notes or change - when you arrive at your holiday destination, you may want to take traveller's cheques as well for security.

Alternatively, a new development is a prepaid, reloadable traveller's cheque card - launched recently by American Express, MasterCard and Travelex. Customers simply load the card with their chosen currency in advance, and are then given a Pin code to get hold of their cash from an ATM or to use in-store.

Lose your card and the balance is intact on a replacement because it is not linked to your bank account. However, the card has a fee (£4.95 with Travelex, for example) and a reload charge (£2.95).

Plastic

While seven in 10 consumers use their credit card while abroad, more than two-thirds do not know how much they are charged for doing so. This is a big oversight since most providers levy a currency "loading" fee of at least 2.75 per cent on all purchases overseas - whether with debit or credit card.

And if you use your card at a foreign ATM, there's usually an extra handling fee of up to 2 per cent of the transaction value - capped at £2.

Not only do you pay a higher rate of interest on credit card cash withdrawals, but there's no "interest-free" period - so you start paying immediately for the privilege of borrowing.

Nationwide building society bucks the trend by not charging the currency-loading fee for customers using its debit or credit card abroad; nor is there a handling fee for using your debit card at an ATM.

Note that, in the UK, your credit card purchases are protected in the event of a complaint if you spend between £100 and £30,000.

Not so if you're buying with plastic on the Continent: a recent UK court ruling said that customers would not be entitled to compensation.

However, this is being contested by the Office of Fair Trading.