Smart ways to spend on holiday

By Benjamin Salisbury

The summer holidays are in full swing, and plenty of Brits are still planning travel. Now is a great time, as the cost of a family break has fallen in many popular destinations. But while you're away, you can't take a holiday from smart money choices. Plan a budget and know the smartest ways to spend before you leave, so your holiday cheer doesn't disappear the minute you return home.

According to July 2015 research from M&S Bank, the cost of a holiday to seven out of the 10 most popular summer destinations is down from 2014 levels.

"Cheaper holidays mean families are able to splash out on holiday upgrades, consider more exotic destinations, or decide to take a longer break than they otherwise might be able to afford," Paul Stokes, head of products at M&S Bank, said in a statement. "However, it's still vital that consumers shop smartly to ... really maximise their holiday budget." smart-holiday-spending

The first step is to plan your budget. Consider drawing up a tentative itinerary before you leave that includes hire cars, petrol, food (including eating out and cooking in your hotel), accommodations and entertainment. Many costs are available online; you can even look up restaurant menus to get a feel for how much it'll cost to eat. Set that much money aside, and when you're travelling, try to stick to your itinerary so there are no surprise expenses.

Then, consider all your travel payment options:

1. Credit Cards.
This is by far the most popular option. According to the UK Cards Association, holidaymakers made 440 million purchases on debit, credit and charge cards while abroad in 2014. Of those, more than half were made on credit and charge cards. Those purchases added up to about £15.8 billion on credit and charge cards. And TravelWeekly reports research from Pay4Later, a point of sales credit provider, that says UK adults have already booked about £16.1 billion worth of holiday spending on credit cards as of July 2015.

There's good reason: "Using your credit card when you make big purchases -- such as booking flights, activities or paying for your hotel -- will mean you get extra protection should something go wrong," a spokesman from consumer group Which? said in an emailed response to questions. Purchases costing between £100 and £30,000 are covered under Section 75 of the Consumer Credit Act, which gives you the right to claim your money back from your card provider if something goes awry.

However, when you're on holiday, you'll want to make sure you're using a card that doesn't charge too much for purchases or withdrawals. For instance, with the Saga Platinum card, your transactions won't have any foreign currency fees attached. The Halifax Clarity Card also lets you spend abroad without fees. You can even withdraw cash without an ATM fee, though you will pay interest on withdrawals.

2. Debit cards.
In general, debit cards are not a wise choice for spending abroad. The majority of debit cards charge high fees for withdrawing cash and often for purchases, too. According to 2014 data from Which?, banks including NatWest, RBS, Halifax, Santander and others charge anywhere from £1-£1.50 for purchases and £1-£5 for cash withdrawals abroad.

"Before using your debit card abroad, check with your card provider what fees will apply," the Which? spokesman said. "You may find it's cheaper to take out a large sum from a cashpoint at the start of your holiday than to use your debit card for repeated withdrawals and over the counter transactions."

However, there are a few good options.

For instance, there is the Norwich & Peterborough Gold Classic Account, which does not charge for use abroad, including withdrawals. Another, if you are near London and the Southeast of England, is a Metro Bank debit card, which charges no loading or cash withdrawal fees in Europe, and only a 1.9% fee plus £1 per ATM withdrawal in the rest of the world. You have to open the account in a branch.

Another concern about using debit is that your transactions are not protected as they are with credit. But many debit providers participate in the chargeback scheme, which works similarly to Section 75, though it is not enshrined in law.

3. Foreign currency.
Cash allows you to lock into an exchange rate and makes it easier to stick to a budget. You can order foreign currency online, which will get you the best rates if you purchase in advance. Even if you wait a few days before your travel, you can still get fairly good deals.

For instance, I ordered €705, which cost me £502.35, from Travelex three days before travelling, and managed to secure a competitive rate of £1 = €1.4034. For an order of £500 or more, there was no delivery or commission charge.

Beware ordering foreign currency using a debit or credit card, as it counts as a cash withdrawal and there will be a charge from your issuer, the same as going to an ATM.

The drawback with cash: it's not protected, so if you lose it or it gets stolen, you're simply out that much money, with little to no chance of recovery.

4. Prepaid cards.
Prepaid cards usually take a week to 10 days to process, so you need to be organised in advance to use this option effectively.

Prepaid cards, like credit and debit, come with various potential fees. Look for top-up fees, cash machine fees, card replacement fees, inactivity fees and even fees for cashing out the remaining balance. A good choice may be the Post Office Euro card, which eliminates most of these fees. However, the exchange rate, while decent, isn't the best available on a prepaid card, plus there is still a cash withdrawal fee of €2.

The Ice Euro Travellers Cashcard comes with no fees if you load £700 or more onto it, plus you get 1.5% cashback on purchases over €50. However, if you load less than £700, you'll have to pay a £4.75 fee.

See related: Fraud more likely to occur with travel purchases, How to play dynamic currency conversion game

Published: 30 July 2015