How to get the best rates on foreign currency

If you’re heading on an overseas trip you may be looking to exchange your pounds for euro, dollars, dirham, dong, lira, or some other foreign currency. But what is the best, and cheapest way to go about it?

In this article NimbleFins explains everything you need to know...

Do you really need cash when heading abroad?

We know cash usage in the UK is declining rapidly as more and more of us are becoming accustomed to tapping our contactless payment cards. In fact, a recent UK Finance study boldly suggested cash transactions will account for just 6% of payments within a decade

Yet for the rest of the world, it’s a slightly different story. While there are indeed many countries closing in on a cashless society, there are other regions where cash is still king.

For example, holiday in Norway, Sweden, Finland, or even Hong Kong, and it’s very possible you’ll do just fine spending on your debit or credit card (as long as it doesn’t charge you an overseas spending fee - more on this below).

Yet holiday in the likes of Romania, Bulgaria, Egypt, Peru, or Vietnam, where cash is still heavily relied upon, and you’ll probably find it tricky relying solely on plastic.

So, whether you need cash to travel overseas may depend on your destination. Yet, even if you’re heading to a country where using a card for payment is now the norm, you may still find it reassuring to carry a handful of euros, dollars, or pesos should you come across an obstinate overseas retailer.

What is the best way to exchange pounds for foreign currency?

If you want physical cash for an overseas trip, then one of the cheapest ways to go about it is to use a Travel Money comparison tool, such as the ones offered by MoneySuperMarket, MoneySavingExpert, and Money.co.uk.

All of these tools will show you a list of rates from multiple FX providers, allowing you to work out how many dollars, euros, dong, you’ll get in exchange for your pounds sterling. And while some providers may try to hide behind additional fees to bump up the total cost, the best comparison tools will take these fees into account — so you needn't do any of the adding or subtracting yourself!

It should be said that not all fees charged by FX providers are unfair. For example, if you want cash sent your home address then you’ll often have to stump up for delivery — though some providers will waive this fee if you’re exchanging a larger amount.

While not always the case, it’s sometimes cheaper to order overseas cash in advance as opposed to opting for click & collect. Likewise, some providers will offer better exchange rates for orders above a set threshold.

Can I just exchange pounds at the Post Office?

Before heading overseas, you may be tempted to head to your local Post Office branch to trade your pounds for foreign currency. After all the Post Office often shouts about its ‘0% commission’ rates so surely it's a good deal?

On this point it’s worth knowing that while 0% commission means you won’t be charged a fee for exchanging cash, providers will often jack up their own exchange rates to compensate. This is why going with a provider charging a modest commission may turn out cheaper than a 0% commission provider with a bloated exchange rate.

In the case of the Post Office, its foreign exchange rates are rarely market leading. However, if you must use the Post Office, then at least order your cash in advance. That’s because the Post Office’s walk-in exchange rates are typically less generous than the rates posted on its website.

Can I exchange pounds at the airport?

You can, but it’s a big no-no.

Exchange rates offered at the airport are often dire, as providers know you’re a captive customer and you can’t take your business elsewhere.

The same goes for ATM’s that can issue foreign currency, often found in airport departure lounges. Again, rates offered by these machines are often pitiful.

FX providers: Is my money safe?

FX firms don’t have to be FCA authorised. This means if you send cash to an FX provider and it goes bust BEFORE you receive your money, you’ve no protection.

This is why it’s better to use FX firms to exchange moderate amounts of cash for the purposes of a holiday. If you’re looking to exchange large sums of money, then it’s probably best to look elsewhere.

Going cashless? Use a top travel credit or debit card.

If you’re happy to head overseas without any foreign currency, then ensure you’ve a top travel credit (or debit) card that won’t charge you for spending on your card abroad. This will allow you to make foreign purchases while being charged the near-perfect Visa or Mastercard exchange rates.

If you want to leave the door open to withdrawing cash while you’re abroad then you should ensure your card offers fee-free overseas ATM withdrawals too.

Free overseas withdrawals can be a great perk if you want to take out cash while abroad. Withdrawing cash overseas can actually work out a cheaper than taking physical cash with you, even if you go with the cheapest FX provider.

However, it’s worth being mindful that in some countries it can be difficult to find fee-free ATM’s. This means you could be charged by the owner of the foreign ATM — even if your UK bank won’t charge you.

Right now, there are a host of top travel credit cards out there (both cards below require a hard credit check)...

The Barclaycard Rewards Visa (25.9% rep APR) offers fee-free overseas spending and ATM withdrawals. As an added boon, the card won’t charge you any interest on cash withdrawals as long as you repay your balance in full each month. It also pays 0.25% cashback on most of your spending, including on overseas purchases.

Another top travel credit card is the Halifax Clarity Mastercard (22.9% rep APR). It also offers fee-free overseas spending and cash withdrawals, though it does charge interest on withdrawals every day until you repay your balance.

Prefer a top travel debit card instead? If you don’t want to apply for a credit card, then you may wish to turn to a current account instead. Chase, First Direct, and Starling all offer debit cards that won’t charge you for overseas spending or cash withdrawals.

The Chase current account pays 1% cashback on most debit card spending for a year, though you can only earn a maximum of £15 per month. Meanwhile ATM withdrawals on the card are limited to £500 a day, and £1,500 per month.

First Direct doesn’t pay cashback, though it does offer a £175 bonus if you switch to it. Overseas ATM withdrawals are limited to £500 a day.

Starling allows a maximum of £300 to be withdrawn each day. You also can’t make more than six withdrawals in a day.

Do note that app-only accounts, Chase and Starling require ‘soft’ credit checks, whereas First Direct requires a ‘hard’ credit check. To learn more about this see our article that explains the difference between ‘hard’ and ‘soft’ credit checks.

So, in summary….