The best advice we can give the would-be traveller or holidayer is to imagine that there is no rate of exchange.
Imagine that the country you're visiting uses the same currency as home. £1 for €1/$1.
The reason we suggest this is so that when you get home and you look at your receipts, you'll have a nice surprise when you realise you actually spent less than you thought.
On the flip side you can drive yourself potty trying to find the most competitive place or mechanisms to shave fractions of a cent off the rate of exchange when in fact you'd be better off not buying that ice cream at the beach...the saving would be about the same.
Now, let's put cynicism to one side for a second - in this series of posts we will look at the common mistakes of the seasoned traveller and suggest some useful hints, tips and pointers that should save you time, money and angst.
3| CURRENCY CARDS
Don't be fooled by so called 'Currency Cards'.
These are pieces of plastic onto which you can load 'X' amount of sterling's worth of foreign currency or (putting it another way) 'X' amount of a foreign currency.
Whilst they mean you don't need to carry cash around they aren't necessarily any more secure than carrying bank notes if you plan on spending cash...this is because you'll be visiting an ATM anyway, won't you?
One of the first things we should say is that this is not a critique on a particular/specific currency card product, brand or company. Any images or references to a specific provider should be interpreted as sentiments expressed towards and about this product as a whole.
Our issue is not with those who offer these cards - it is with the notion of these cards as a competitive product in the first place.
We're looking at the traditional loadable single currency cards offered by the likes to Travelex, FairFX, the Post Office etc.
We will look at the merits of companies like Revolut in another post. Their product differs somewhat.
One of the other reasons we dislike these instruments is because often the rate of exchange you get is the one at the precise time you load the card with currency.
So, "I am going away for a long weekend...
On Thursday I load £300 worth of euros on to my card at a rate of 1.09, meaning I have €327 to spend.
What do I do with those euros on my card if I do not spend the whole €327?" It just sits there. Going to waste?
If I contact the card provider and ask them to credit me back the GBP equivalent of what I have not spent they will do one of two things...
Remember that I got a rate of 1.09 when I loaded the card?
The card provider will look at the current rate - let's say it's three weeks after my return by the time it occurs to me to exchange back my remaining money - they will then work out if the rate (3 weeks on) is higher or lower than when I loaded the card.
For the sake of illustration let's suppose we didn't go on our long weekend at all and therefore spent none of the €327 we loaded on to the card. We would like to get our £300 back, given that nothing equivalent to it was spent. Right?
If we ask the card provider to exchange back to sterling and the pound has risen in value (so moved from 1.09 to 1.12) then the provider will apply their usual extortionate margin to the current exchange rate - 1.12. So, not only has the rate got worse for us to exchange back our EUR, but, we are suffering that socking great margin too.
The other thing they will do, if the pound has lost value (so moved to 1.02), is use the initial rate we loaded the currency in at (1.09) as their floor and then simply apply that huge margin again.
So, even if the rate of exchange is more favourable to us, we will never be able to exchange euros back to GBP at a better rate than when we bought.
This means that my €327 will never rebuy me £300.
I mean, we understand that this card company need's to make a living, but their margin remains the same, so why, at the very least, can't they give us the benefit of an improvement in the rate of exchange?
Add to this the fact that we have probably already paid an upfront fee to procure the card in the first place.
When it comes to you and me exchanging our money, we are considered 'retail' customers - as you might expect. We are not exchanging enough money to benefit from wholesale economies of scale. And yet, the issuer of your currency card is and does.
They exchange colossal amounts of money daily and, as a result, they get a preferential rate of exchange.
When doing the sort of currency exchange that Prime Cap offers (so not cash or card, but, bank to bank) our sole purpose is to give you the benefit of the better rate we get...in the form or a rate that undercuts 'retail'.
One of our main issues with these currency cards is that, often, you are in fact getting a rate worse than you would 'retail'.
Sure, you have what you consider to be a convenient and secure way of taking your money abroad, but you are paying a socking great premium for that piece of plastic, and we think you needn't.
Think for a second about the fact that you already have a product in your wallet that is secure, non-cash and even insured should someone use it without your consent - it is called a credit card.
Yes, your credit card might have a less than competitive rate of exchange associated with payments in a foreign currency, but, their rate is still better than the majority of these currency card providers.
We use our credit card abroad - it gives us a rate of exchange that more or less reflect the market at the time of our payment and we are not committing to loading a bulk amount in one go...so, it is real time access to your own money without committing to rates that might prove unfavourable in due course.
An extensions of the above theory is the use of other card and personal payment products...
Tune in to Episode 4 for hear more about 'The Challengers'.