A vote to leave the EU could see sterling plunge on the money markets later this week. For holidaymakers heading to the Med, it is likely that when they swap their pounds for euros they will not receive anywhere near as much as they enjoyed last summer. So what, if anything, can you do to protect yourself?
This week the exchange rate was down to around €1.26 compared with €1.42 in August last year. So you are getting around €160 less for every £1,000 of spending money than you were back then.
But the prediction among some economists is that the pound could fall another 10% against the euro and 15% against the dollar if the vote on Thursday takes Britain out of the EU. That suggests an exchange rate of just €1.14 to the pound, which would make holidays in Spain 20% more expensive than last year.
But it is worth bearing in mind that currency fluctuations aren’t just a referendum-linked phenomenon. The value of the pound against the euro is continually shifting. Two years ago, in June 2014, for example, holidaymakers were only getting €1.23 to the pound and just €1.18 in March 2013. Back in June 2005, however, you were getting around €1.5 to the pound.
“In real terms, if you are exchanging £1,000 of travel money you will get £40 (about €51) more today than you would have two years ago, and £84 (about €106) more than three years ago,” says Ian Strafford-Taylor, chief executive of travel money specialist FairFX.
To lock into currently available exchange rates and protect yourself against any potential further decline, you can either buy currency now or load it on to a prepaid currency card.
Buying currency now
If you plump for buying currency, shop around for the best-value. Exchange rates offered online tend to be the best, but make sure you leave enough time for it to be delivered and are happy with the rules and regulations of the agent. Also make sure you are satisfied with the security of the company before you agree to buy, because if it folds there is often no protection.
One way to find the best buy is to use Moneysavingexpert.com’s travel money maximiser comparison tool, which compares rates at about 40 online bureaux and ranks them by how much currency you will get after fees and charges. For example, comparing what £1,000 would buy in euros last Monday, 13 June, at 3.30pm (rates are updated hourly), the top buy was €1,248.70 from Travel FX, followed by €1,246.50 from the Currency Club and £1,244 from Currency Online Group. Travel FX and Currency Online Group are both authorised by the Financial Conduct Authority, whereas the Currency Club is not.
Buying a prepaid card
Another way to lock into an exchange rate is to load money on to a prepaid travel card. You do this before you travel and use it like a debit card to spend or withdraw cash. But unlike debit and credit cards, which calculate the exchange rate on the day you spend, a prepaid card uses the rate on the day you load it. You’re quids in if the pound weakens after you load the card, but if the pound strengthens you lose out.
There are many prepaid cards on the market with wide variations in fees, exchange rates and terms and conditions. The top three, according to Moneysavingexpert, are:
• The Mastercard from Revolut – this uses the “perfect” interbank rate that banks offer each other and is better than rates you will find at bureaux de change. There are no spending fees and no ATM fees on withdrawals up to £500 (about €630/$700) a month, but a 2% fee applies above that. You need a smartphone to use the card as it is managed via an app. You have to request the card through the app after signing up.
• The tried and tested FairFX euro card – you don’t need a smartphone app for this, and it uses FairFX’s own exchange rate. This changes daily but usually beats that of most other prepaid cards. You are charged €1.50 to use overseas ATMs, so it’s better to pay with the card rather than withdraw cash. There is usually a £9.95 application fee, but you get it free if you apply via Moneysavingexpert.
• The new WeSwap – like Revolut, this is managed via an app. Its rate is also based on the perfect interbank rate plus a fee, which depends on how quickly you need the cash. WeSwap technically works as a peer-to-peer exchange site in that it matches you with people in other countries who want pounds for their euros or dollars, though you will not notice this in practice. If you withdraw less than €250 on the card you are charged €1.75, so it is best to minimise the number of withdrawals you make.
Note that prepaid cards are not covered by the Financial Services Compensation Scheme, so you could lose money if the backing bank or building society went bust.
While these cards say they are accepted anywhere you see the MasterCard or Visa symbol, there are some notable exceptions. Most car hire places will not accept them, nor will many petrol stations or motorway toll booths. Also, some cards have a lot of fees, including an “inactivity fee” for not using them.
