Cut the cost of foreign money

Who gives the best deal on currency exchange? Vicky Trapmore investigat es

No trip abroad takes place without that embarrassing moment when a traveller, confused by an unfamiliar profusion of local currency, will invite a shop assistant to take her pick from a handful of proffered small change.

Until a universal currency is invented, there is no way of avoiding that mild feeling of inadequacy. But in recent years, it has gradually become easier to pay your way when on foreign soil without making a total idiot of yourself.

There is a choice of ways to carry your money, with credit or debit cards, plus travellers cheques in local denominations. Sadly, no single payment method can ever replace cash completely. In fact, American Express, a major provider of both travellers cheques and charge cards, recommends holidaymakers take some of each. A spokeswoman advises: "Carry a mixture of cash, travellers cheques and credit, debit and charge cards so that you have a number of options in case you run out of cash, lose your cheques, or damage your credit card abroad."

The major question facing travellers is that of how to obtain the best deal - and the most francs, pesetas or lire for your pound - from the wide range of foreign exchange options available.

It always makes sense to plan ahead. Currency conversion charges depend on the method chosen to buy foreign currency, but it is usually cheaper to convert large amounts in advance rather than waiting until you are abroad.

Take one example. An Abbey National debit card - for people who have an account with the bank - carries a 1.25 per cent cash advance handling fee and 1.5 per cent loading on all ATM withdrawals. By contrast, its credit card handling fee is 2.5 per cent, and the same loading fee is incurred when making cash withdrawals.

However, purchasing goods directly incurs only the extra loading fee. Thus to get the same amount of francs, equivalent to pounds 750, a typical two- week spend for a couple, using a cash machine in Marseilles will cost pounds 20.63 in charges using a debit card and pounds 28.13 with a credit card. Obtaining cash from your local Abbey National branch before you go will cost pounds 11.25 in charges. That's pounds 16.88 less than using a credit card in a machine abroad.

It is also important to shop around for the best exchange rate before you go, as this can vary wildly. A rate of nine francs to the pound rather than 9.5 francs gives 6 per cent less spending money.

In addition, it is worth checking the percentage commission charged. To take another example, for the equivalent of pounds 750, NatWest would give you 7,252.5 francs and charge 2 per cent commission for non-members, a total of pounds 15. At Marks & Spencer, pounds 750 buys 7,208.25 francs, 44.25 francs less. Yet this option costs pounds 10 less than choosing NatWest, because there is no commission fee at M&S.

Cash can be exchanged at a variety of locations in the UK. Obvious ones are high street banks, building societies, and bureaux de change in travel agents such as Thomas Cook. NatWest offers the best rate - before commission.

While renewing your passport at the Post Office, enquire about its foreign exchange service. The rate for francs is competitive to that on the high street, and the GPO is now Britain's largest Bureau de Change retailer.

The no-commission offer at M&S makes it another unexpected location of foreign money very much worth visiting, although the number of stores where this service is available is still limited.

Travellers cheques are considered a far safer option than cash, in that if they are lost or stolen replacements are usually available within 24 hours, while most issuers will offer emergency hotlines and additional support to holiday-makers. Cheques are available in an increasingly wide range of currencies - American Express offers 11, NatWest offers eight.

Before you buy them, it is always worth asking whether travellers cheques will be more acceptable in sterling, US dollars or the currency of the country being visited, as conversion prices vary in each case.

The commission on travellers cheques depends on the seller. Sterling travellers cheques are usually sold at a lower rate of commission (from 0.75 per cent to 1 per cent) than non-sterling ones (from 0.75 per cent to 2 per cent). Many outlets buy back unused travellers cheques free of charge if that was where they were purchased. The same goes for foreign currency.

Credit and debit cards are an increasingly popular source of cash abroad. The intense rivalry between the two major issuers, Visa and Mastercard means travellers will be regaled with conflicting claims as to how many outlets worldwide are prepared to accept their cards. The number is roughly similar, although there will be some minor regional variations. Nowadays, however, it is extremely difficult to travel in a country which does not accept both. If in doubt - try to take one of each.

Handling fees of between 1 and 2.5 per cent are levied when using a card card. Issuers charge a cash fee in addition to this. This fee is not added when using the card to buy goods directly. Thus it is cheaper to pay in a restaurant directly with your debit card than to withdraw cash from an ATM and pay cash. The amount of commission charged on cash withdrawals from one of the one billion automatic teller machines (ATM) in the world varies from 1.5 per cent to 2 per cent.

Thanks to the World Cup, there are many offers at the moment for commission on the French franc. Nationwide Building Society and the Halifax are both offering commission-less French francs for the duration of the World Cup.

Marks & Spencer is charging no commission for foreign money obtained via its account card from July to September this year. Meanwhile, the Post Office has enlisted the help of former footballer and TV personality Gary Lineker to launch its own commission-free francs and travellers cheques, for purchases of pounds 150 or more.

Marks & Spencer, Marble Arch branch 0171 935 7954; Post Office Counters 0345 22 33 44; Thomas Cook Holiday Money Direct 0990 44 77 22 or contact your local branch.