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If you’re looking to exchange currency before a trip overseas you’ll want to get the most bang for your buck. And this starts with understanding how currency exchange works. Our guide rounds up what you need to know.
How does currency exchange work?
If you buy something at a shop or supermarket for £1.10 one day, but a week later it’s dropped in price to 95p, effectively the value of your money is stronger – it buys you more. Conversely, if prices go up for the same item, your money is weaker and buys you less.
A currency exchange rate works in much the same way; it’s simply the value of one country’s currency against another’ country’s currency. And like produce prices, the pound’s value against the currencies of other countries, such as the United States (dollar) and France and Germany (the euro), tends to fluctuate.
Currency exchange rates can change minute to minute, although most banks only update their rates once each business day. Nevertheless, you’ll want to try to carry out your currency exchange at a time when your pound will buy you as much foreign currency as possible.
Fees may also be payable either as a flat rate, a percentage of the exchange, or a commission fee. In most cases however, the provider will ‘roll up’ any fee into the exchange rate itself. That’s why it’s important to shop around and compare deals, factoring in both the exchange rates and fees. You can find more in our FAQ section, below.
Where to exchange currency before you leave
If you want currency in cash before you head off overseas, it makes sense to plan ahead to avoid high fees and poor exchange rates. Our tips below can help you save you money by being savvy about where you exchange currency in the UK:
Avoid changing money at the airport
If you don’t have time to exchange money before your trip, it can be tempting to get foreign currency at an airport kiosk or currency exchange counter in the departure lounge. This option is convenient but be aware the exchange rates are typically far less competitive than those offered with online specialist currency brokers and even with high street currency exchange or your bank.
For example, if you’re travelling to the United States and your bank offered you an exchange rate of $125 per £100, the airport kiosk may give you only $118 per £100, costing you extra money in the form of fewer dollars for your pound.
If you had made that exchange with an online provider, or even at a high street specialist currency exchange bureau, you’d have an additional $7 in your pocket for your holiday.
Our currency conversion calculator can help you work out roughly how much currency you could be getting for your pounds, to help you make comparisons between providers before you go ahead with your transaction. But try not to leave it too late – and particularly try to avoid buying currency at the airport.
High street banks are unlikely to be competitive on exchange rates
You can order foreign currency online through your bank or the Post Office (or in some cases on the phone), for home delivery.
Depending on your bank, where you live and which country’s currency you need, some currencies may be available for same-day exchange. Other, less frequently requested currencies, may require a few days or more of advance notice.
Again, although this can be a quick and convenient way to get your currency it is unlikely to be the cheapest option, with exchange rates tending to be less competitive than those offered by specialist currency brokers. Fees and charges for exchange can also be high.
Look at online currency specialists
Online currency exchange brokers, such as Travelex, Eurochange, TravelFX, TorFX, and the Currency Online Group, are all likely to offer more competitive exchange rates compared to the high street banks.
These providers offer a wide range of currencies for home delivery. You can check the exchange rate and any associated fees, such as handling and delivery charges, before you go ahead.
You can also order currency online through the Post Office, with Marks and Spencer, Sainsbury’s Bank, Asda and Tesco, for example. All of which can organise home delivery or in many cases you can arrange to pick up the cash in store.
The more currency you want to exchange in cash in advance of your trip, the more important it is to find a competitive rate as the potential savings are that much greater.
Remember to compare all the related fees and charges when using an online currency service to ensure you’re still getting a good deal once these fees have been factored into the transaction.
Consider a specific account for currency exchange
There are a range of services available from electronic money specialists, such as Revolut and Wise, that enable you to exchange currency and hold it in a free account, which you can then use overseas with a debit card provided as part of the account. This option can suit regular travellers or visitors overseas who want a convenient and lower cost way of exchanging money in advance of a trip.
These types of accounts, which are typically operated through an app, tend to offer better deals on currency conversion, with competitive exchange rates and lower fees (compared to high street banks).
Prepaid cards for travel work in a similar way, enabling you to top up currency onto a card, which can then be used for spending while you’re abroad.
But with currency accounts and prepaid cards there will usually be limits on cash withdrawals overseas using the card, and there can be other associated fees and charges. Always read the small print before you sign up to an account and ensure it will suit your needs.
It is important to note that e-money providers are not banks and so money in these accounts do not fall under the Financial Services Compensation Scheme which protects up to £85,000 per person in the event the provider goes bust.
Top tips for saving money when spending overseas
Once you’re abroad there are a few ways you can keep costs down when making purchases or cash withdrawals, including the following:
Use low or no fee credit and debit cards
Using debt and credit cards overseas can be expensive, due to foreign usage fees (which are typically 2.99%) and poor exchange rates. Use a standard bank debit card to withdraw currency abroad and you’ll be hit with further fees on top as well (this could be an extra 1.5% for example). But you can take some steps to mitigate this problem by choosing plastic designed for use abroad.
Typically marketed as credit cards for travel there are a handful of products that have no or low fees for overseas use, including Halifax Clarity and Barclaycard Rewards, for example. These specialist cards also won’t charge a fee (or have lower fees) for cash withdrawals made abroad.
When it comes to the best debit cards for overseas use it can be more tricky to get the best savings. That’s because you may not want to fully switch your current account just to take advantage of a debit card with no overseas usage fee.
Further, most account providers expect you will use any new account as your sole current account – they impose a minimum funding requirement each month or ask that your salary is paid into the account, for example.
But among those accounts offering a debit card with no fees for overseas spending or cash withdrawals are Chase Bank, First Direct, Starling Bank, and Virgin Money.
Monzo and Kroo also offer fee-free spending abroad with the debit card on their accounts. However, there are fairly low maximum monthly limits on fee-free cash withdrawals with both these providers (£250 a month limit in EEA countries with Monzo or £200 in non-EEA countries, and a £200 per month fee-free limit with Kroo).
Pay in the local currency
When you go to pay for goods or services using a debit or credit card overseas some retailers or merchants will ask if you want to pay for your purchase in the local currency or in pound sterling. While it may not happen with every purchase, be on the lookout because it’s a place where you can save on fees.
When given the option you should choose to pay in local currency whenever possible. If you choose to pay in pounds you’ll be charged an extra currency conversion fee and you’re likely to get a poor exchange rate.
The merchant’s point of sale system (the card reader) may make it seem like it’s a convenient choice to pay in pounds instead of the local currency, but it will ultimately cost you more.
Watch out for ATM withdrawal limits and fees
Even if you can get a favourable exchange rate using a foreign cash machine, you may want to hold off using it until you know what kind of fees your bank will levy and what limits it imposes on daily withdrawals abroad.
Ask your bank about daily or monthly limits on overseas withdrawals that apply on your bank account. You could ask the bank to increase your daily limit while you’re on holiday if this is something it can consider.
Bear in mind also that some international ATMs limit you to a lower amount of cash withdrawals than your bank. Plan ahead to make sure you have enough cash during your trip.
Frequently Asked Questions (FAQs)
Where is the best place to exchange currency?
You’ll typically get the most competitive exchange rates on currency and the lowest fees by using a specialist online currency broker.
There is a wide range of choice of providers and they’ll show their exchange rates, plus any fees and charges, on their website so you can easily compare before going ahead.
Big name brands, such as Post Office, Marks and Spencer, Tesco and Asda, also all offer online currency exchange, delivering the money to your home in time for your trip.
What fees will I pay for currency exchange?
Some currency exchange providers will charge a small flat rate fee for changing money, such as £3 or £4 for example, and this might increase the more cash you want to exchange. In other cases there may be a commission charge, such as a 1% fee.
Far more common however is for providers not to charge upfront fees, but to take their margin or cut from the transaction through the exchange rate they offer on the currency.
However, if you buy currency online and want it delivered to your home, there are also likely to be delivery fees.
What is a currency exchange rate?
The currency exchange rate is the value of one country’s currency relative to another country’s currency.
Exchange rates are changing all the time and are influenced by a broad range of factors, such as the strength of a country’s economy, its interest rate movements and inflation.
Can I exchange foreign currency back into pounds?
It is usually straightforward to exchange foreign currency back into pound sterling once you’re back in the UK after an overseas trip.
High street banks can do this, as can Post Office branches and any other Bureau de Change or online currency provider offering this service.
But as with any currency exchange it pays to compare the exchange rates on offer from different providers, as well as the fees associated with the transaction, to get the best deal.
