Unravelling the mystery of foreign currency charges
Research by the Post Office found that more than half of all holidaymakers were confused by the various charges they pay when buying foreign currency. Most people buy from their bank or at the airport. But by shopping around you can save as much as £25 on £1000 worth of currency or travellers cheques. Read on as we untangle the mess and clear up the confusion.
Banks, building societies, travel agents and foreign exchange bureau usually charge commission of 1 - 2% on currency purchases (notes), with minimum charges or a flat fee of between £2 and £3.50. On top of this they will often charge an additional commission or flat fee on any travellers cheques you buy. 'Commission free foreign currency' of 0% commission usually means commission free foreign cash (and often only for a limited amount of cash). You will still be charged commission on travellers' cheques.
There is also some confusion over 'buy' and 'sell' rates. You will typically see four rates of exchange quoted - two for foreign currency (cash) and two for travellers cheques. Ignore the terminology. Banks will sell you currency or cheques at the lower rate, and buy them back at the higher rate. So, for example, if a bank is quoting $1.80 and $1.90 to £1 it will sell you $180 for £100, and it will give you £94.73 for $180. Other than commission, this is how banks make money from foreign currency.
The best places to buy your foreign currency
You can buy your currency online via a number of foreign exchange companies. Each time we check the rates, including commission and delivery charges, we find that Travelex and The Post Office are the most competitive, although Marks & Spencer are also worth a look.
Travelex need 48 hours notice, but you can collect your currency from the airport (and get much better rates than if you wait to buy at the airport). The Post Office also delivers, or you can pick your currency up at your local Post Office.
Foreign currency tips and a checklist
- 'Commission free foreign currency' usually means commission free foreign cash. You will still be charged commission on travellers' cheques.
- Don't leave buying your currency until you get to the airport. You won't get the best rate, you will pay commission, and they may not have the amount you want.
- Shop around and do your sums. For the amount you plan to buy, is it cheaper for you to pay commission with a low minimum charge or a flat fee?
- Check the rate of exchange too. Some 'commission free' offers have a poor exchange rate. It might be cheaper to pay commission.
- The Post Office don't charge commission on foreign currency purchases for 30 major foreign currencies. For smaller currency purchases this can represent a saving, but for larger currency purchases make sure you check the exchange rate against other providers. Also, although foreign currency travellers cheques are commission free, the Post Office (and most other 'commission free' outlets) do charge commission on sterling travellers cheques.
- Consider buying online. Most online companies do not charge commission and will deliver to your home, your work, or you can collect you currency at the airport.
- A less obvious place to consider is Marks & Spencer. Many of their larger stores have a Bureau de Change offering currency and travellers cheques, and their rates are amongst the most competitive.
- Minimum charges make it expensive to exchange small amounts. If you are travelling with a group you might want to make one combined currency purchase, rather than everybody buying their currency individually.
- Don't forget that you can draw cash abroad on most credit and debit cards using your normal pin number. The ATM's will recognise that your card is 'foreign' and offer you instructions in English. But note: your card issuer may charge a transaction fee of between 1.5 - 2%, a 'currency loading fee' (they adjust the rate downwards, by between 0.5% and 2.75% depending on the bank) and on credit cards you may be charged interest. However, it's still the most convenient way of getting your holiday money
- Don't be persuaded to take more currency than you need on the strength of 'commission free buy back' offers. Although you won't be charged commission, the currency will be bought back at a lower rate, so you will still lose out, typically by between 2 - 5%.