Inside travel: How to make the most of the falling euro

Money matters: Tourists relax in Mallorca. The euro has slumped in value this week, increasing the spending power of British travellers (Getty Images)

The last time you could hope to change sterling to euros and clear €1.22 for each £1 was in the autumn of 2008, when the pound was halfway down its freefall towards parity – the midwinter trough when £1 equalled €1. Sterling enjoyed a briefest of summer flings in 2010, when €1.20 seemed tantalisingly within reach.

But since Monday morning, when foreign-exchange markets began to react to the leftward swing in France and the post-election paralysis in Greece, sterling has been on the rise. However, before you start splashing the cash, bear in mind that British travellers are still at least 10 per cent shy of the happy days when the euro began and each £1 was worth €1.40 – and learn how to make the most of each penny.

Where should I go?

One of the eurozone's many problems is that prices vary wildly from one country to another. A coffee to jolt your day into life at the elegant Café Fazer in Helsinki costs €3, which will buy you five cups at the equally historic and atmospheric A Brasileira in Lisbon. The Club Sandwich Index released this week by Hotels.com showed Paris most expensive, more than twice the average in Madrid and Dublin.

Aim south or east for outstanding eurozone value. The three former "Eastern bloc" republics in the € club are Estonia, Slovakia and Slovenia; their capitals offer cut-price city breaks.

Best-value beach holidays reside in Spain, Portugal and Greece. These late deals are based on two sharing self-catering accommodation for a week: £145 from Stansted to Rhodes on Wednesday (16 May) with Thomson (Thomson.co.uk); £245 from Manchester to Mallorca tomorrow (13 May) with Airtours (Thomascook.com); £250 from Gatwick to the Algarve tomorrow (13 May) with Monarchco.uk.

How do I get the best rate?

The €64,000 question. The "spot rate", as published in The Independent and available on your smartphone, is the "raw material" price that you can never quite achieve. But there are ways that you can get close.

With confusing policies on commission charges, make sure you ask the right question when shopping around for foreign exchange: "How much will you charge me for €500". You are hoping for an answer of close on £400, but there are many pitfalls to avoid.

First, never change money at a UK airport: two weeks ago at Cardiff airport, buying €100 would cost you more than £107, a rate of €0.93 to the pound. But paying online at a site such as travelex.co.uk gives a far more favourable rate.

Your high street bank, too, is likely to offer a derisory rate. The local Post Office is better (and has the advantage of a no-commission rule, making it good for small quantities of other currencies such as the Swiss franc or Croatian kuna). Travel agents have at last started to get competitive. But the very best deals are to be found in the capital, particularly at scruffy bureaux de change in west London. A trip along Queensway in London W2 will probably help you extract most euros for your pound. If you are changing substantial sums – perhaps £500 or more – you can bargain with the bureau and hope to get an extra half-cent on the rate.

What about plastic?

Well worth considering, especially if you are heading for destinations with a high petty-crime rate such as Italy and Spain. But unless you possess one of the very few debit cards that charge no fees for overseas transactions, regard your debit card as the last resort. At ATMs, you will pay "transaction fees" that can amount to 5 per cent of the amount withdrawn. Pay for a €25 lunch with a debit card and you may add €3 to the effective cost – check the small print of your bank's policy to see what they extract.

Credit cards are much less punitive, and give your finances a bit of a holiday by offering an interest-free breather of a few weeks. But you have no control over the exchange rate that the card issuer employs. It will certainly be better than the high street rate, but worse than the best rates online. So, instead consider the 21st-century version of the traveller's cheque: a pre-paid currency card. Plenty of companies issue these, but policies vary on how much you pay to use ATMs, etc. MoneySavingExpert.com has a good guide to the best: see bit.ly/eurodosh.

Whichever card you choose, you can load it with euros at the agreed rate, making it easier to manage your spending: with a no-ATM-fee card and an exchange rate of €1.22, you know that a €1 coffee has cost exactly 82p. And if the card is lost or stolen, you can limit your losses and get another sent to you.

I'm going to the eurozone in August. Should I lock into a decent rate now or wait for something better?

Whatever you decide, it's a gamble. Sterling has been appreciating against the euro for several months, and may continue to do so, perhaps reaching €1.30. The longer the so-called "euro crisis" drags on, the more likely this scenario looks. But events and international finance may conspire against sterling, so a wise policy is to buy half your expected euros now and the rest shortly before departure – partial hedging, as practised by many travel companies.

Will my summer holiday be cheaper?

In day-to-day spending, yes – but if you've paid in advance for anything (hotels, car rental), don't expect a refund. Tour operators can surcharge British holidaymakers by 2 to 10 per cent if sterling falls, but it is most unlikely any of them will give money back. Many will have "hedged" their payments to suppliers at less favourable rates than prevail now – the corporate version of a losing bet. But it could be that next winter's holidays could be cheaper.

What happens if I'm in Greece and it falls out of the euro?

Carry cash, and don't panic. Low-denomination euros are all you need. In the event of a sudden default and subsequent exit from the euro, the banking system will probably freeze for a week and halt electronic transfers. But the cash economy will carry on – and the "real" euro will be more highly valued than the overprinted "Greek euro" that emerges. Order another drink, and you'll be the most popular person in the taverna.

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