Your holiday spending - cash, credit card or travellers' cheque

	Typical APR Variable	Max Int Free
	14.9%	56 days
	14.9%	56 days
	14.9%	56 days
	14.9%	56 days
	15.9%	56 days
* Based on Lowest Standard Rates and is not a full search of the whole market

More than 67 million foreign holidays were taken by Brits last year with similar numbers expected to head overseas this year. But although holidaymakers are keen to get the best deals on flights and sun tan cream, one thing they tend not to shop around for is holiday money.

When you look at the foreign exchange options available it's no wonder we don't know which way to turn. From debit and credit cards to travellers' cheques, cash and pre-paid cards, the choice is a bewildering one.

If you are thinking of using debit or credit cards abroad you may find yourself paying unexpected fees and charges which bump up the cost of your holiday. Debit cards come with foreign loading charges of up to 2.75%, cash withdrawal fees of 1-2% and in some cases an additional per item charge for purchases. If you dont read the small print before you go you may be in for a nasty surprise when you return home to your bank statement.

Nationwide is the only card provider not to levy any fees on card usage abroad so canny travellers may wish to consider opening a Nationwide FlexAccount before they head off.

Most credit cards also charge for foreign loading and transactions overseas with Nationwide again being the notable exception. Saga (for over 50s) and Liverpool Victoria credit cards are also good bets if you're travelling in Europe but charge foreign loading fees further afield.

If you're thinking of using your credit card to withdraw cash from an ATM abroad the advice is simple: DON'T!

Cash withdrawals incur a much higher rate of interest than normal transactions and any interest free period that applies to purchases made on the card does not apply to cash withdrawals. For example Tesco's Bonus credit card has an APR of 12.9% but the interest rate jumps to 20.8% for cash withdrawals. And whereas you normally get 56 days interest free, this reverts to zero if you take cash out abroad.

Travellers' cheques and foreign currency

Other options for holidaymakers include travellers' cheques and currency. These can both be purchased from high street banks, online or from foreign exchange bureaus. Whichever way you buy them, the providers make their money in the same two ways; from commission charges and foreign exchange rates.

Commission free deals are becoming easier to find these days but you need to consider the exchange rate on offer to work out how good a deal it really is. In some cases you might be better off paying a commission fee in return for a more favourable exchange rate.

Because rates are constantly changing it is best to shop around on the day you intend to buy currency. Last-chance providers such as foreign exchange desks in airports usually offer the poorest value. It is a good idea to have some local currency for your destination before you jet off but - as at home - be wary of carrying about large wads of cash.

The availability of ATMs and how many retailers take debit and credit cards at your destination will influence how much cash you should take. Travellers' cheques offer some security - such as lost ones being replaced - but bear in mind that you have to find somewhere to cash them which could be tricky if you're going somewhere remote or arrive late at night or on a bank holiday.

Another option is a pre-paid card such as Cash2Go or Amex travellers' cheque card. These allow you to load cash on to the card before you go and while you're travelling (normally over the phone or online) and can be used at most ATMs. They can be useful for travellers who don't want to carry too much cash and who are unable or unwilling to carry credit or debit cards with them, but still want ATM access. Like travellers' cheques they can be replaced relatively quickly if lost or stolen. Furthermore, for budget-conscious travellers there is the additional advantage that it is impossible to take more out than you have put on as there is no overdraft or credit facility.

As a general rule it's best to take your holiday money in different forms and keep it in different parts of your luggage or places about your person. For example, a Nationwide debit card in your wallet, some currency in your pocket and a Nationwide, Saga or Liverpool Victoria credit card kept somewhere safe for emergencies should ensure you have all bases covered.

15 July 2008 © Moneyextra.com

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