Traveling is expensive enough at the moment without costs increasing further due to poor financial decisions about your holiday allowance.
Yet year after year we fall into the same old pitfalls. We take out too much cash and pay too much for it. We use the wrong credit and debit cards and we charge the wrong amounts when we try to figure 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've put together a guide to the top mistakes to avoid. Even though the amounts saved per purchase may seem relatively small, they can quickly add up over a few weeks' vacation.
1. Buy currency at the airport
At an airport exchange office you almost always pay a premium on the exchange rate - unless you order online in advance. And in any case, in many countries you simply no longer need cash upon arrival. I no longer travel with paper money. It is true that in some countries cash still dominates - for example, in Malta, 88 percent of payments are still made in cash, and in Spain and Cyprus this number is around 84 percent. But even here you can normally still use your card to buy things and in places like Finland and the Netherlands most transactions are now done that way. If you do want to carry some banknotes with you, it is best to order them in advance from your bank or, even better, simply use your debit card at an ATM on arrival at your destination (see point six below).
2. Withdraw money with a credit card
Even if you pay off your balance every month, a cash advance on a credit card will incur an additional fee (a percentage of the amount - often two percent - or a flat fee). And, unlike the usual rules that apply to purchases made directly with the card, you will also normally pay interest on the cash amount withdrawn from the day you make the withdrawal until the date it is paid off. It's much, much better to make your purchase directly with the card - it's not only cheaper, but also gives you more legal protection.
3. Using a credit card that already has debt
Not everyone is lucky enough to be able to pay off their credit card balance every month. If you are among those who don't, then using them while on vacation will be a very expensive way to pay for things. You increase your debt and almost certainly pay very high interest on it every month. If you need to borrow money for a holiday, there are much cheaper ways to do it. Especially if, for example, you have a flexible mortgage that allows you to easily withdraw or repay.
4. Selecting the wrong rate
It is becoming increasingly common for shops, restaurants and overseas ATMs to offer the choice of a payment already converted into pounds, as an alternative to the amount being displayed in the local currency. Selecting the pre-converted rate will almost certainly cost you more. I've checked the comparison several times over the years and that option has always been more expensive. Always choose the local currency.
5. Failing the math test
The euro and dollar are pretty simple at the moment - as they are each roughly equal to £1. But many countries require a much more complicated calculation, and if you can't easily convert a currency in your head, you're much more vulnerable to overcharges. Avoid this with a currency conversion app or the calculator on your phone. In countries with high exchange rates for the pound, be especially wary of extra zeros being surreptitiously added to banknotes.
6. Choosing the wrong card issuer
The amount that different banks and other card issuers charge for foreign transactions varies greatly. There are several ways banks take money from you, including transaction fees (which can be 1.5 to 2 percent) and charging you the exchange rate by up to three percent. So every time you pay for something, you can easily lose four or five percent. I avoid this by using a Monzo card, which doesn't charge such fees (although you do have to pay extra if you withdraw more than £200 a month from ATMs abroad). It simply reports the current Mastercard exchange rate, which has a markup of just 0.33 percent above the European Central Bank rate.
It's not the only card that offers such a good deal. For use abroad, Which one? also recommends debit cards issued by Starling Bank, Cumberland Building Society, Virgin Money, Chase and Kroo Bank. And it highlights a handful of great value credit cards that offer similar rates: the Halifax Clarity Credit Card, the Bip Credit Card (both MasterCard) and the Barclaycard Rewards Visa. Read more about the one holiday hack that will definitely save you money this summer.
7. Losing money on a closed currency
A closed currency is a currency that can (normally) only be purchased in the country where it is issued. So you need to change your money (or, much better, use an ATM) upon arrival, rather than before you get there. The biggest mistake is to change too much and forget to change it back to pounds before leaving the country. Firstly, you probably won't be able to change it in Britain and secondly, it's almost always illegal to export it, so - at least in theory - you're breaking the law if you bring it into the country. Here is an example of the FDCO advice for Tunisia: "It is strictly prohibited to take Tunisian dinars out of the country. To exchange any Tunisian dinars left at the end of your stay into pounds or other hard currency, you will need to present the receipt from the bank where you first withdrew or purchased the dinars. Other countries with closed currencies include Sri Lanka, Cuba, Morocco and India.
8. Failure to reclaim VAT
In many countries, tourists can reclaim VAT on goods purchased during their visit and the rewards can be attractive - usually a refund of up to 20 percent of the purchase price (although this is often deducted from an administration fee). There will be hoops to jump through. You'll need a receipt and you'll need to make a claim - often at the airport when you leave the country. Systems vary from country to country and you should check the details for your destination. Rules for using the system when visiting the EU can be found here.
9. Arriving unprepared
Unfamiliar with local costs and prices, travelers are always at risk of being overcharged. Ironically, you're most likely to overpay in countries where services are cheap rather than expensive: a price you quote may seem reasonable, but in local terms it's a rip-off. Doing some research into what things should cost will minimize the risks. Take taxi fares, for example - find out what the typical (or often fixed) cost is for a trip from the airport to the city center, and whether it's 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.
This story was first published in November 2022 and has been revised and updated.
