Foreign exchange rates for travellers: top tips and advice (2024)

Getting the most out of your money when you exchange can make your holiday budget go further.

In this article, we share our top currency exchange rate tips and advice, from the best place to exchange money to common mistakes to avoid.

What is an exchange rate and how does it work?

An exchange rate tells us how much of one currency we can exchange for another.

In the past, many currencies’ value was tied to the value of gold, and each note would have equitable worth in the precious metal.

As economics advanced and inflation crept in, this system became outdated for major economies like the US by the 1970s.

Exchange rate models

Now, currencies’ worth is determined using one of two models.

The most common is the floating exchange system, in which currency traders use factors such as a country’s economy, imports and exports, and inflation to set its value.

Countries that are less developed or economically volatile will have a pegged exchange rate, where the government sets the value of their currency against others.

Why do I need to exchange my currency?

Across the world, a whopping 180 currencies are recognised by the UN as legal tender.

The most widely used include the US dollar (USD), the Euro (EUR), the Japanese Yen (JPY) and the Great British Pound (GBP).

While some countries, such as many EU member states, use the same currency as part of a ‘currency union’, you’ll unlikely be able to use your home country's currency when travelling abroad.

Our top foreign exchange rate tips

Here are our top tips if you're planning to exchange money for your holiday.

1. Compare before you buy

We all know it’s sensible to shop around for things such as car, home and travel insurance to get the best deal.

But did you know you should do the same when you exchange currency? Grabbing your dollars or Euros from the first place you see could lose you a fair bit of money.

If you’ve booked your holiday through a travel company offering exchange services, it’s tempting to go for the easy option and get your travel money from them.

Shopping around before you exchange your currency can ensure you get the best deal and maximise your holiday spending money.

Fees and commissions can significantly reduce the amount you get depending on the exchange rate.

One thing to consider when shopping around is that not all currency firms are authorised by the Financial Conduct Authority (FCA), as they’re viewed as a ‘goods seller’ rather than a financial services provider.

This doesn’t mean they’re not trustworthy, but it does mean you could lose your money if they suddenly become insolvent.

2. It's not always better to exchange before you fly

While getting your notes before you leave will give you peace of mind, it’s not necessarily how to secure the best deal.

In some countries, you may be able to get more for your home currency once you arrive – make sure you avoid airports, unreliable vendors and choose somewhere trustworthy, such as a bank.

If you’re travelling with a popular currency such as the US dollar, you’re unlikely to have issues exchanging your currency once you touch down.

Check before travelling; it will be harder to exchange in rural areas or if you’re travelling with a less frequently used currency.

3. You may not need to take cash

Exchanging your currency is not a completely stress-free experience.

If you exchange before flying, you’ll need to keep a significant amount of cash safe during your journey.

And even if you opt to do it once you’ve arrived, it can be stressful ensuring your holiday budget doesn’t get misplaced or stolen.

Some banks, such as Monzo and Starling, do not charge fees for using their cards abroad.

Others, like Halifax, offer certain types of no-fee debit or credit cards aimed at frequent travellers, but you don’t need to change your current account to use a card on holiday without expensive fees.

You can choose a pre-paid travel card instead, which you can use in the same way as a credit or debit card in your chosen currency.

However, some banks charge a lot for every overseas purchase or withdrawal, which will add up to a significant amount over your holiday.

Some countries have a primarily cash-based economy, so make sure you know where to make withdrawals at your destination.

You can learn more about fees for using your card abroad.

4. Look for a buy-back guarantee

If you’re not sure you’ll spend all your cash, look for a buy-back guarantee.

Some currency exchange companies allow you to lock in the exchange rate you bought at.

When you return from your trip, you can sell your unwanted dollars or euros back, usually without any commission fees.

A buy-back guarantee isn’t always worth seeking out. It’s less important if you’re relatively confident you’ll spend your currency or plan to return to the same country or region in the next few years.

If you’re confident you won’t spend all of your money or are dealing in a currency prone to large fluctuations, a buy-back guarantee is worth seeking.

5. Don’t leave it until the last minute

Sorting out your currency should be a key part of your holiday preparations, even if you’re not planning on exchanging before you leave.

Leaving it until the last minute and panic-buying will prevent you from accessing the best rates and deals. You may have to exchange your money at the airport, known universally as the place with some of the poorest exchange rates.

In the worst-case scenario, you may find your destination has no place to exchange currency, leaving you at the mercy of extortionate international card fees.

Before you set off, it’s vital you have the right travel insurance policy in place to make sure your holiday is a happy and healthy one.

If you found our tips and advice helpful and you’re looking for assistance with your finances and reaching your future goals, you can find an expert financial adviser via Unbiased.