Personal Finance: Broaden the wallet first, then the mind

Choosing the right time and the right place to change money can be of crucial importance to travelling enjoyably.

A TYPICAL family of four will spend pounds 1,000 on top of the cost of the holiday during a fortnight abroad. A backpacker on the other hand, might survive on pounds 100 a week all in. Either way, getting the best deal on their currency can make the difference of a meal out, or a trip they couldn't otherwise afford.

The best and worst deals we found on pounds 1,000 among the most reputable banks had a margin of more than 231 French francs. Find yourself in the hands of some money changing shark, and you won't come off that lightly.

But all the good news on the currency front may not last much longer, so the experts recommend anyone travelling abroad this summer should buy their currency as soon as possible. Travelex's finance director Clive Kahn said: "The pound will buy you 25 per cent more against most European currencies than two years ago. It's at the top of its range and unlikely to go much higher. It has already begun weakening against the dollar."

Another reason to buy sooner rather than later, is that some banks have limited commission- free offers. British Airways offers its customers commission free holiday money through Travelex. Thomas Cook has cut its normal currency charges by introducing a pounds 2 flat fee, and Marks & Spencer, has thrown off its woolly jumpers pulled on a bikini and is fighting its way, towel in hand, to the top of the best value tables, by combining commission-free trades with a very keen exchange rate.

And this is the key to getting the best deal for your spending money. Exchange rates, like commission rates differ from bank to bank, so you must consider these as well when deciding where to buy. But deciding whether to take travellers cheques, foreign currency or just rely on your credit card is the main stumbling block to early purchase of your holiday cash. The sensible traveller will take a spread of all these things with him.

Tourists are targets of organised criminals throughout the world, and being stranded without any money in a strange city, can ruin a holiday. Travellers cheques should bring greatest peace of mind, as they guarantee speedy replacement if they are stolen.

Most banks, building societies, the post office, travel agents and M&S will sell you travellers cheques usually for a typical commission of 1 to 3 per cent with a minimum of pounds 3. Smaller branches may need to order the currency, so it always pays to book ahead.

Also bear in mind you may need to pay an additional commission when you encash the cheques abroad, which tends to make them a slightly more expensive option than currency. American Express and Thomas Cook will cash them free at their own outlets.

Using a credit or debit card is another way to keep down the amount of cash carried. Remember your insurance policy is unlikely to cover more than pounds 250 or pounds 300 in cash anyway. Most banks levy a 1.5 per cent cash handling charge, which is topped up by an additional foreign usage loading of 2.75 per cent. This jacks up the charge to a hefty 4.25 per cent. But credit card companies use a favourable inter-bank exchange rate to bring the costs down.>

A few new cards, such as the Frizzell Bank Master/Visa card do not load the card at all, and Saga has a credit card which charges only 1.25 per cent on European currency conversions. However, once again this is only part of the picture. A poor exchange rate could wipe out any gains and the Frizzell Card levies an annual fee.

To find out which were the pick of the foreign exchange operators The Independent conducted its own survey of how much currency and travellers cheques one thousand pounds would buy from different organisations, with some interesting results.

The top dogs differed from country to country, but some seemed to offer consistently fair value. Thomas Cook's low flat charge combined with a sharp exchange rate made it the winner across most currencies, although it fared less well for travellers' cheques, where it still levies a commission of two per cent.

British Airways customers do pretty well out of its special deal, as do those at Marks & Spencer, although the foreign currency service is only available at major stores.

The Post Office offers a generally respectable service which outclasses most of the banks, and leaves Amex coming in about next in the pecking order.

The major banks tend to cluster together like a gaggle of plain girls at a disco. Their credit cards however did surprisingly well, ahead of the bank's travellers cheques and poorer currency deals. With Barclaycard, purchases of pounds 1,000 would convert to 9,536 French francs for example, and 9,676 francs with Midland. Barclaycard would buy 241,886 Spanish pesetas for the same sum and even more with Midland, at 243,961.

So, now you've sorted out the cash, and you are armed with some of the stunners of the currency parade, you can start planning your holiday romance.