The 10 biggest mistakes to avoid with your holiday money this summer

Travel is expensive enough at the moment without adding to the costs with bad financial decisions over your holiday money. Yet we fall into the same old traps year after year. We take out too much cash, and pay over the top for it. We use the wrong credit and debit cards, and we get our sums wrong when we try to work out how much things really cost. Sometimes we even fail to claim substantial refunds to which we are entitled.

To help you avoid the pitfalls, we have put together a guide to the most important mistakes to avoid. Even if the amounts saved might seem relatively small for each purchase, over a couple of weeks’ holiday they can quickly mount up.

1. Buying currency at the airport

You will nearly always pay a premium on the exchange rate at an airport bureau de change – unless you order online in advance. And in any case, in many countries you simply don’t need cash on arrival any more. I no longer travel with any paper money. It’s true that, in some countries, cash still dominates – for example, in Malta, 88 per cent of payments are still made in cash, and in Spain and Cyprus the number is around 84 per cent. But you can normally still use your card and in places like Finland and the Netherlands, most transactions are now made that way. If you do feel you want to carry some notes, it is best either to order it in advance from your bank or, better still, simply use your debit card in a cashpoint on arrival at your destination (see point six, below).

2. Taking out cash on a credit card

Even if you pay off your balance each month, you will pay an additional fee for a cash advance on a credit card (either a percentage of the amount – often two per cent – or a fixed fee). And, unlike the usual rules which apply to purchases made directly with the card, you will normally also pay interest on the amount withdrawn as cash from the day you make the withdrawal until the date it is paid off. Much, much better to make your purchase directly with the card – that will not only be cheaper, but will give you more legal protection too.

3. Using a credit card which is already in debt

Not everyone is fortunate enough to be able to pay off their credit card balance every month. If you are one of those who doesn’t, then using it while on holiday will be a very expensive way to pay for things. You are adding to your debt, and almost certainly paying a very high rate of interest on it each month. If you need to borrow money for a holiday, there are much cheaper ways of doing so – especially, for example, if you have a flexible mortgage which allows you easily to draw down or repay.

4. Selecting the wrong rate

It is becoming more and more common for shops, restaurants and overseas cash points to offer the choice between making a payment which has already been converted into sterling, as an alternative to the amount displayed in the local currency. Selecting the pre-converted rate will almost certainly cost you more. I have checked the comparison several times over the years and that option has always been more expensive. Always choose the local currency. 

5. Failing the maths test

The euro and the dollar are quite straightforward at the moment – since they each are roughly equivalent to £1. But many countries require a much more complicated calculation and if you can’t easily convert a currency in your head you are much more vulnerable to being overcharged. Avoid this with a currency conversion app or the calculator on your phone. In countries with high exchange rates to the pound, watch out especially for extra noughts being surreptitiously added to bills.

6. Choosing the wrong card issuer

The amount that different banks and other card issuers charge for overseas transactions vary hugely. There are ­various ways in which banks extract money from you, including transaction fees (which may be 1.5-2 per cent) and loading the exchange rate against you by up to three per cent. So you could easily lose four or five per cent each time you pay for something. I avoid this by using a Monzo card, which makes no such charges (although you do have to pay extra if you withdraw more than £200 a month from overseas ATMs). It simply passes on the current ­Mastercard exchange rate, which has a mark-up of just 0.33 per cent above the European Central Bank’s rate. 

It isn’t the only card to offer such a good deal. For use abroad, Which? also recommends debit cards issued by Starling Bank, Cumberland Building Society, Virgin Money, Chase and Kroo Bank. And it highlights a handful of good-value credit cards that offer similar rates: the Halifax Clarity Credit Card, the Bip Credit Card (both MasterCard) and the Barclaycard Rewards Visa.

7. Losing money on a closed currency

A closed currency is one which can (normally) only be bought in the country where it is issued. So you have to change your money (or, much better, use a cashpoint) on arrival, rather than before you get there. The biggest mistake is to change too much and forget to change it back into sterling before you leave the country. First, you will probably be unable to change it in the UK and second, it is nearly always illegal to export it, so – at least in theory – you will be breaking the law if you take it out of the country with you. Here’s an example of FDCO advice for Tunisia: “It is strictly prohibited to take Tunisian dinars out of the country. To exchange any Tunisian dinars left over at the end of your stay into sterling or other hard currency you will need to show the receipt from the bank where you first withdrew the dinars.” Other countries with closed currencies include Sri Lanka, Cuba, Morocco and India.

8. Missing out on unofficial rates

In countries with closed or weak currencies, the pound, the euro or the US dollar may also be so highly sought after that you can get a much better exchange rate on the black market. Obviously, dealing in this way can be risky both legally and because of a high chance of being ripped off. But in some countries, a parallel system for tourists operates semi-officially or even officially. If you don’t take advantage of this, you will lose out. A good example is Argentina, where there is a black market rate for the US dollar called the “Dolar Blue” and it is currently nearly double the official rate. Last summer, the Argentinian government introduced a scheme which now allows tourists to exchange up to US$5,000 per person at a rate which is close to the Dolar Blue.

9. Neglecting to claim back VAT

Many countries allow tourists to claim back the VAT on goods they have bought while visiting and the rewards can be attractive – typically a refund of up to 20 per cent  of the purchase price (though often an admin charge is deducted from this). There will be hoops to jump through. You will need a receipt, and you will need to make a claim – often at the airport as you leave the country. The systems vary from country to country, and you will need to check the details for your destination. Rules for using the system when visiting the EU are here.

10. Arriving unprepared

Because they are unfamiliar with local costs and prices, travellers are always vulnerable to being overcharged. Ironically, you are probably most likely to overpay in countries where services are cheap, rather than expensive: a price you are quoted may seem reasonable, but in local terms it is a rip-off. Doing some research on what things ought to cost will minimise the risks. Take taxi fares – find out the typical (or often fixed) cost for a journey from the airport to the city centre for example, whether it is a legal requirement to use a meter. If you can’t find reliable guidance online, a hotel concierge is normally a reliable source of advice.