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Spend & Save

Consuming Issues: Don't be left short-exchanged on foreign currency

So, you're withdrawing a wad of notes from the cashpoint machine, when someone snatches the last £50 note. You may chase after them. Or call the police.

Why should you take any less care when getting foreign currency? According to the Post Office, the average Briton changes £529 for a summer holiday. Poor exchange rates and credit card charges could snaffle almost £50 of that.

Following a few tips will make more of your holiday kitty: order currency online and collect it, and beware that credit cards can skim 5 per cent off transactions.

First, changing your money. On a recent trip to Europe, I was surprised at the claim made by a friend that the biggest airport money-changer, Travelex, was good value. It isn't, though more competitive rates are available from its website.

Generally, ordering online and collecting currency in person is much cheaper than handing over a tranche of money at the airport, or elsewhere, on the basis of my research last week on changing £500 for euros.

The best rate was 575 euros at two small bureaux de change, Best Exchange and Thomas Exchange, which have a few outlets in London.

With 300 kiosks around the country, No1 Currency offered 566 euros and, in an impressive exception to the online rule, paid the same rate for impromptu visits to its branches, many of which are in other shops.

The Post Office offered 564 euros for collection of online orders, and, for unannounced visitors to 8,700 branches, 542 euros (about £20 less).

Next best was Marks & Spencer, which offered 553 (although you have to have an M&S card to order).

For online orders, Travelex paid 563 euros but, with no advance order, Travelex at Heathrow T4 paid just 530 euros, hitting travellers with an unimpressive exchange rate and 1.5 per cent commission.

A summary? The difference between the cheapest London bureau (575 euros) and Travelex Heathrow (530 euros) was 45 euros, or £40 – enough for a good meal out abroad.

Plastic can be handy for foreign trips, especially if you want to limit the amount of cash you are carrying to avoid theft or loss (although that risk can be diminished by storing some in luggage and some on your person).

Credit cards – though not debit cards – also give protection for faulty purchases costing more than £100.

But beware of hefty credit card charges, which are especially steep when you withdraw cash. According to banking experts Defaqto, the average credit card charges a 2.8 per cent foreign exchange fee for purchases abroad – more than £5 for every £200 slapped on plastic.

Cash withdrawals are even more expensive, attracting the 2.8 per cent foreign exchange fee and an extra cash-withdrawal charge averaging 2.76 per cent. This means that if you are withdrawing the equivalent of £200 in cash, the bank will pocket £10.

Some credit cards are significantly cheaper. The Post Office credit card and the Santander Zero credit card from Abbey (whose record on customer service is chequered) both have 0 per cent exchange fees for foreign purchases.

The Nationwide Building Society gold credit card and Saga's Platinum card waive fees for purchases on mainland Europe, but charge, respectively, 0.84 per cent and 1 per cent for other foreign transactions.

Debit cards are cheaper than most credit cards, while still being widely accepted overseas. The FairFX prepayment debit card can be pre-loaded for trips and has no commission and good exchange rates (£500 bought 576 euros, the best deal of all).

Current-account debit cards charge an average 2.2 per cent foreign exchange fee per transaction.

One other tip: Defaqto's banking analyst David Black advises against accepting a foreign retailer's offer to pay for goods in sterling: the exchange rate will be worse and the purchase will end up costing more. After all, there's no point funnelling money to financial providers when it could be used for your fun.