How to avoid wasting holiday money before you leave home

Foreign trips are expensive - so don't waste money on a dud currency deal, warns David Prosser

Just one week to go for millions of families looking forward to a break over the spring bank holiday. But if you're travelling abroad this half-term, or planning ahead for the summer holidays, think carefully about your spending money. Paying too much for foreign currency is a serious waste of money.

In theory, the absolute cheapest way to spend money overseas is on plastic. The exchange rate you get is based on the wholesale rate levied by Visa or Mastercard, which is pretty close to the rates charged in the international money markets.

However, most debit and credit card providers add their own charges when you use their cards overseas. These are likely to include a loading fee - a percentage charge skewing the exchange rate in favour of your card provider - fees for withdrawing cash from ATMs and possibly transaction fees when you use plastic in shops and restaurants while overseas.

Just one company does not levy any of these charges. Nationwide Building Society's debit card is free to use overseas, while its credit card has no loading or transaction fees, but does charge £1.50 on overseas cash machine withdrawals, the same as in the UK. These cards are therefore the cheapest way to spend money while you're in a foreign country.

If you prefer to take cash - or you don't have access to Nationwide's products - it's not so easy to find the best deal.

"Not only do you have to consider the commission charges, but you must also take into account exchange rates, which change on a daily basis," warns Lisa Taylor, of financial analyst Moneyfacts. "Even if you take the time to search the market, calculating the total costs, the chances are that the same deal could not be found the next day."

Comparing costs is not straightforward. Commission rates vary hugely, but can also be misleading. A company that charges a high commission may actually be better value than a rival with no commission at all but a better exchange rate.

Broadly speaking, most analysts advise avoiding high-street banks and tour operators when you're changing money. While it's convenient to buy your currency from the local branch of your bank, or from the company selling you a holiday, you're likely to get less foreign currency for your pounds.

Specialist exchange services are a better bet, as long as you tread carefully. These include the bureaux de change that operate both on the high street and in airports, as well as companies such as Marks & Spencer, now one of the country's biggest foreign exchange providers.

The latter is often particularly competitive. A Moneyfacts snapshot survey of foreign exchange providers, conducted earlier this week, found M&S offered one of the best deals on both euros and dollars. Martin Lewis, who runs the Moneysavingxpert.com website, says this is not unusual.

"Marks & Spencer and the Post Office are good places to start - they often tend to sell you the most currency for your pounds," he says. "But there is no guarantee that they will do on the particular day you need to buy it."

If you are shopping around, there are several traps to avoid. "There are big differences in advertised prices, depending on where you buy, with rates varying greatly from a branch, by phone, online or at the airport," says M&S's Liz Neild. Travelex, she points out, is often one of the most competitive foreign exchange companies, but its best rates are only available online.

"Travel money bureaux price regionally and the more out of town you are the worse rate you are likely to get," Neild adds. "Also, bureaux often do not set their rates until midday so they can compare what their competitors are offering, so try and buy your currency in the afternoon."

Finally, remember that while a lot of companies now offer delivery services if you're buying online or by phone, there may be a cost. Weigh up the convenience of delivery against the saving you may be able to make elsewhere.

A modern version of travellers' cheques?

* Travelex this month launched the latest "pre-pay" card aimed at people travelling abroad. The concept is simple: you load up the card with foreign currency before you leave. The card can then be used for cash withdrawals in ATMs and to pay in shops and restaurants abroad. Around six providers now offer similar cards, including American Express and Western Union.

* However, many cards charge you to load up the plastic before you leave the UK and then each time you withdraw money or pay for a transaction - £2.50 for each withdrawal at Travelex, for example. Transaction fees are also common. Travelex doesn't charge this way, but you'll pay 4 per cent at Western Union when you use its card to pay for goods and services.

* Pre-pay card providers argue that the advantage of their plastic is that it as secure as travellers' cheques and much simpler. The cards are generally chip and PIN equipped, so there's not much point in stealing them. And if you do lose the plastic, providers can get a new one to you quickly. However, the cost of these cards is likely to outweigh the convenience for many travellers.