Holiday Money: A travelling companion in a world of change

Travellers' cheques offer the best security, says Christina Stopp

The London bankers Herries, Farquhar came up with a precursor to travellers' cheques in the 18th century. Known as "circular notes", they were issued to a minimum pounds 20 value, and could be cashed in 160 European towns.

In 1874, Thomas Cook relaunched the idea in New York, with the co-operation of 400 hotels in Europe, America and the Middle East. By the 1890s, Cook's Circular Note system was in use worldwide. At this point the American Express Company - offspring of Wells Fargo, of stagecoach fame - also took up the idea with its travellers' cheques. The rest is history.

In 1909, Cook's $20 travellers' cheque had the rates of exchange printed on its face. The sterling equivalent of $20 was pounds 4 1s 8d, or Fr102.5, or DM83.3. Times have changed. Today, rapidly fluctuating exchange rates are a concern for the traveller using cheques. They mean a possible gain or loss if you have any left over at the end of the holiday. Or you can commit yourself to an exchange rate at the outset by buying cheques in the local currency.

At a Thomas Cook office you can buy cheques on the spot in any of 13 currencies. The Australian dollar and South African rand are easy to find. At the Abbey National and the Halifax you can get Saudi ryal cheques. But foreign currency cheques will cost you extra from most outlets: pounds 500 in French francs costs pounds 9.50 from the Abbey National compared with pounds 7 for pounds 500 of sterling cheques. French franc cheques cost pounds 10 at First Direct, NatWest and Thomas Cook, all of whom charge just pounds 5 for the sterling equivalent.

Neither American Express nor the Halifax makes a distinction between sterling and currency travellers' cheques in the commission charged, both levying 1 per cent, but the Halifax's additional pounds 2 handling charge puts the cost of a pounds 500 order up to pounds 7.

Handling charges are the norm with issuers where you have to order your cheques: Abbey National and the Halifax, though not First Direct (see table). None of those shown in the table makes any charge for buying back unused sterling cheques, though you will be expected to produce your original receipt. Abbey National and Barclays (some currencies only) make a charge on unused non-sterling cheques which they issued.

Amex and Thomas Cook have networks of offices abroad where you can cash cheques with no charge. Thomas Cook has arrangements with bank chains in some countries whereby the bank will cash their cheques cheaply or for free. With most other issuers, you are dependent on the charges levied at the hotel reception, bank or bureau de change. Don't forget to compare exchange rates as well as charges. An office charging nil commission will probably have loaded its rate of exchange to recoup costs.

In France, it is also worth asking if the shop or restaurant will take a travellers' cheque. Cheques used in this way are taken at face value, so there is no further charge.

Travellers' cheques are, arguably, more secure than plastic when abroad. If you lose your cheques, say Cook's, the local Cook's office can replace them in as little as half an hour.

Cheques offer security in another sense. Many people like to feel they have paid for the holiday before they set out, with no credit card bill awaiting them on their return.

Convenience may also come into the equation, if you want to be able to walk into a shop on the morning you go on holiday and buy cheques in various currencies. If you have to order your cheques it will be slower and probably dearer, though some banks now quote a cut-off time. If you phone your order before the cut-off time, you will get your cheques the next day.