Taking money on holiday used to be pretty easy. A small amount of cash and a wallet of travellers’ cheques and you were on your way. But now, with the spread of plastic and cash machines accessible in nearly every holiday destination, the choices have become far more complicated. 

There are so many things to think about when preparing for a holiday, packing the right clothes; travel insurance, passports and parking. Holiday spending can often get left until the last minute, but planning early and making the right choices can save a lot of money and ensure a stress-free trip.

Sadly Travellers’ Cheques are no longer a realistic option for spending abroad. Very few banks and shops now accept them and you could be left short of cash, with cheques you can’t exchange.  It’s also worth remembering that plastic cards have much the same protection, as Helen Beckett of money comparison website Confused.com explains: “If they got lost or stolen you can cancel them and get them reissued, so you won’t lose out if there is any fraudulent activity.”

So the best option is to take a mixture of credit and debit cards along with a little cash.  Sarah Schlichter is Editor of the blog IndependentTraveler.com: “I have a credit card that doesn't charge any foreign transaction fees, so I use that for every purchase I can. I bring another credit card (one that does charge fees, unfortunately) as backup, in case the other stops working for any reason. I get cash at an ATM as soon as I land in a foreign airport, and use that for any purchases for which credit cards aren't accepted.”

It is worth shopping around to compare the best travel credit card deals

The best place to start is by investigating the credit and debit cards you already own. What kind of deal do they offer when spending abroad? Be warned, this is never the option for the cost-conscious, but does make life easy if you only make one or two trips overseas a year and spend relatively little money.  If you’re worried about the security of using your main current account overseas, one simple idea is to open a second account and use that instead.

A cheapest choice under the vast majority of circumstances is to sign-up for a special low-cost credit card to use overseas.  Deals change, so the best way is to check price comparison websites, as Helen Beckett advises:  “It is worth shopping around to compare the best travel credit card deals ... you can save a lot of money when compared to using a debit card abroad, many of which charge a fee of up to £1.50 every time you use the card.”  If you use these cards you should pay off the balance when you get back though, as these low charges can be dwarfed by massive interest rates.

Prepaid cards can be useful, but tend to have less favourable exchange rates

For many people, taking credit or debit cards abroad is too stressful and a prepaid card might be a better option. These can be topped-up in advance and ensure that a thief can’t empty your current account or run up a huge credit card bill.  Beware though, as Sarah Schlichter advises, the best rates don’t match those of the specialist overseas cards.  “Prepaid cards can be useful, but tend to have less favourable exchange rates than normal credit cards. With the latter, you get interbank exchange rates, while many prepaid cards will give you a rate closer to that of an exchange bureau.”  

Again, you can find the cheapest cards on price comparison websites, but watch out for inactivity and replacement fees which can soon add up. Also be aware of over-spending your allowance, as there can be a delay between using the card and the amount being deducted from the balance.

Once you’ve sorted out your cards, the next thing is to plan your cash. If you have a specialist card, the cheapest option is to withdraw cash as soon as you land. But if you’re keen to take a few notes in your wallet, then the golden rule is never change money at the airport.  If you must get cash when you fly, then try pre-booking online. It can sometimes be done only a few hours in advance and will save you some money.  The website moneysavingexpert.com provides a useful tool to help compare exchange rates between companies that charge commission and those that don’t.

The most important thing when taking cash abroad is to keep it safe and ensure your travel insurance policy is up to scratch., as Helen Beckett from Confused.com explains: “Make sure ... (your cards and cash) are kept on your person or in a locked safety deposit box at all times. But if the unfortunate were to happen, and these were lost or stolen, having the appropriate travel insurance can ensure some of this loss can be recovered ... Be sure to check the amount of cash covered under the Personal Money section of the policy is suitable and read the excess amounts, clauses, and exclusions carefully so you won’t be caught out.”

Make sure ... (your cards and cash) are kept on your person or in a locked safety deposit box at all times

According to Helen, there is one other very important rule to remember when spending abroad. “Often people don’t understand the implications of choosing to pay in sterling rather than local currency when using their card. It may seem easier to pay in sterling, but usually the shop does its own conversion rate and it can often end up costing you a lot more than the rate your card company would use.”

The advice boils down to three simple rules. A specialist credit card will always be cheapest. If you’re taking cash, don’t buy it at the airport and finally make sure you have adequate travel insurance.  Sarah Schlichter from IndependentTraveler.com says if you’ve made sensible plans, there’s really no need to worry.  “Fretting over every pound or penny is a good way to ruin a vacation! Just build a little room into your budget for unexpected expenses and enjoy your trip.”