Travel is expensive enough right now that you’re not adding to the costs with bad financial decisions regarding your vacation money.
But we fall into the same old traps every year. We take too much cash and pay too much for it. We use the wrong credit and debit cards and get our amounts wrong when trying to calculate how much something actually costs. Sometimes we fail to even request the significant refund we are entitled to.
To help you avoid the pitfalls, we’ve prepared a guide showing the top mistakes to avoid. While the amounts saved on each purchase may seem relatively small, they can add up quickly after a few weeks of vacation.
1. Buying foreign currency at the airport
Unless you order online in advance, you’ll almost always pay a premium over the exchange rate at the airport currency exchange. In any case, in many countries you no longer need cash on arrival. I don’t travel with paper money anymore. It is true that cash still dominates in some countries; For example, in Malta 88 percent of payments are still made in cash, and in Spain and Cyprus the figure is around 84 percent. But even here you can normally use your card to buy things, and in places like Finland and the Netherlands most transactions are now made this way. If you think you want to carry some banknotes with you, it’s best to order this in advance from your bank, or better yet, use your bank card at a cash machine when you arrive at your destination (see point six below).
2. Withdraw cash from credit card
Even if you pay off your balance each month, you’ll pay an additional fee for a credit card cash advance (either a percentage of the amount—usually two percent—or a flat fee). Contrary to the usual rules that apply to direct card purchases, you will normally also pay interest on the cash withdrawal amount from the day you make the withdrawal until the payment is made. It’s much, much better to make the purchase directly with the card; Not only will this be cheaper, but it will also give you greater legal protection.
3. Using a credit card you already owe money on
Not everyone is lucky enough to be able to pay off their credit card balance every month. If you’re one of those who don’t, using this while on holiday will be a very expensive way to pay. You’re increasing your debt and almost certainly paying a very high interest rate every month. If you need to borrow money for a holiday, there are much cheaper ways to do it; especially if you have a flexible mortgage that allows you to easily withdraw or repay, for example.
4. Choosing the wrong rate
It is becoming increasingly common for shops, restaurants and overseas tills to offer the option to choose between making a payment already converted to sterling, as an alternative to the amount displayed in the local currency. Choosing the pre-converted rate will almost certainly cost you more. I’ve checked the comparison several times over the years and this option was always more expensive. Always choose local currency.
5. Failing a math test
Euro and dollar are pretty simple right now; because they are roughly equivalent to £1 each. But many countries require a much more complex calculation, and if you can’t easily convert a currency in your head, you’re much more vulnerable to being overcharged. Avoid this with a currency conversion app or calculator on your phone. In countries with high sterling exchange rates, be especially careful of extra zeros surreptitiously added to bills.
6. Choosing the wrong card issuer
The amounts requested by different banks and other card issuers for international transactions vary greatly. There are a variety of ways banks can take money from you, including processing fees (which can be 1.5-2 percent) and charging you up to three percent for the exchange rate. 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 a fee (though you do have to pay extra if you withdraw more than £200 a month from ATMs abroad). It reflects the current Mastercard exchange rate, which has a profit margin of just 0.33 percent above the European Central Bank rate.
This isn’t the only card with such a good deal. Which one for use abroad? also recommends debit cards issued by Starling Bank, Cumberland Building Society, Virgin Money, Chase and Kroo Bank. It also highlights a handful of affordable credit cards that offer similar rates: Halifax Clarity Credit Card, Bip Credit Card (both MasterCard), and Barclaycard Rewards Visa. Find out more here about the one holiday tip that will definitely save you money this summer.
7. Losing money in a closed currency
Closed currency is currency that can (normally) only be purchased in the country where it is minted. That’s why you need to change your money when you arrive (or better yet, use an ATM) rather than before you get there. The biggest mistake is to exchange too much money and forget to convert it back to sterling before leaving the country. Firstly, you probably won’t be able to change it in the UK, and secondly, it’s almost always illegal to export it, so – in theory at least – you’d be breaking the law if you took it out of the country. Here is an example of FDCO’s advice to Tunisia: “It is strictly forbidden to take the Tunisian dinar out of the country. To exchange remaining Tunisian dinars at the end of your stay into Sterling or another currency, you will need to present the receipt from the bank from which you originally withdrawn or purchased the dinar. Other countries with closed currencies include Sri Lanka, Cuba, Morocco and India.
8. Neglecting to claim back VAT
Many countries allow tourists to claim back VAT on goods purchased during their visit, and the rewards can be attractive – often a refund of up to 20 per cent of the purchase price (but often an administrative fee is deducted from this). There will be hoops to jump through. You will need a receipt and will usually need to make a claim at the airport when leaving the country. Systems vary from country to country and you will need to check the details of your destination. Here are the rules for using the system when visiting the EU.
9. Arriving Unprepared
Travelers are always vulnerable to being overcharged because they are unfamiliar with local costs and prices. Ironically, in countries where services are cheap rather than expensive, you’re likely to overpay: the price you’re quoted may seem reasonable, but in local terms it’s a rip-off. Doing some research on what it should cost will minimize the risks. Get taxi fares – find out the typical (or often fixed) fare for the trip from the airport to the city centre; For example, find out whether it is a legal obligation to use a taximeter. If you can’t find reliable guidance online, the hotel concierge is normally a reliable source of advice.
This story was first published in November 2022 and has been revised and updated.