Need holiday money? How to get better FX rates.

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How can you get the best foreign currency rate while on holiday? Well, I have done a reasonable amount of research into this now and must conclude that it is impossible to get the best rate available from just one source! So, I’ve asked myself another question – what’s the most hassle-free way of paying for things while travelling abroad knowing that you’ve got a good deal? And, what do I mean by hassle-free you may ask! To me it means one account, one card and no bother about pre-purchasing any currency in advance. I either use my apple pay, tap or chip and pin, I don’t want to even give it a moment’s thought, after all, I am on holiday.

What has fundamentally changed in the way we can spend abroad comes down to what is known as peer to peer. TransferWise, for example, have teamed up with banks across the globe to match up payments. This is how it works: Tony, from London goes to New York and while there buys himself a pair of shoes costing him $65. At the same time Sarah, from New York, has gone out with a friend and paid for a meal in a restaurant in London costing £50. Tony’s payment is then matched off against Sarah’s and visa versa, thereby taking out the expensive cost of transmitting and changing that money. By doing this TransferWise can give you the mid-market price which you can see live on Google. They then charge you a small fee, typically 0.35% for major currencies (up to 1% on other smaller currencies).

Now a similar process is followed by Mastercard and Visa, but you don’t necessarily get as good a rate. A report written by Nomadgate, based on research provided by Nerdwallet on exchange rates for US Dollars into various other currencies found that Visa was on average 0.3% more expensive than the mid-market rate (as you see on Google) and Mastercard was on average 0.21% more than the mid-market rate, although there were occasions where you won as the Mastercard and Visa may lag pricing wise in your favour from time to time. I tested this today for example and yes, Mastercard did provide me with a better rate than that shown on Google. But, that won’t be the case all the time. 

I have looked at three new providers, all with slightly different offerings:

•    TransferWise
•    Revolut
•    Monzo

There are other providers out there, but these now seem to have got some traction, which is important, as I do believe that there may be some consolidation to come.

TransferWise offer a nice easy to use application for your phone and a card to go with it. With their Borderless account you can preload with some cash and not bother about pre-purchasing any currency, as that’s a hassle (although you could if you wanted). Keep your money in sterling, pay in Euros one day and US Dollars the next, no problem, mid-market price + a small transparent fee. But there is a snag. If like me, while on holiday you may wander off from the family, buy the odd cappuccino and purchase a newspaper. TransferWise have a minimum fee of 80p on Euro transactions (and similar rates for other currencies), so this would equate to an additional £1.60. That’s going to start rack up on a two-week holiday. 

Revolut also have a great phone application. I’ve not used them myself, but friends and colleagues seem very happy with them. They will also give you the mid-market price like TransferWise, but there is no additional fee. But they have two snags in my opinion. On weekends, when currency exchanges are closed they will add 0.5% to the transaction fee for major currencies 1% for smaller currencies like the Thai Baht or 1.5% or more for some. The second snag relates to the fact that they are losing money. While your money is kept in a separate bank account with Barclays and I am sure your money is safe; there could be some administrative issues if they started to struggle.

Finally, Monzo. Yes, app and card, apple pay, tap. With this you get the Mastercard rate and while the Mastercard rate might not be quite as keen as the mid-market price (on average), there is no loading on weekends like Revolut or minimum transaction fees that you get with TransferWise. This to me is hassle-free.

Stress Testing!! (no test occurred – just a guess)
Cappuccino bought in a café in Rome on a Tuesday morning.
1st - Revolut, 2nd - Monzo, 3rd - TransferWise.

Newspaper purchased in Paris on a Saturday morning.
1st - Monzo, 2nd - Revolut, 3rd - TransferWise. 

Paid for hotel Hong Kong on a Monday morning.
1st Revolut, 2nd - TransferWise & Monzo.

Paid for hotel in New York on Sunday.
1st - Transferwise & Monzo, 3rd - Revolut. 

Banking guarantees, profitable, here tomorrow (who knows).
1st - Monzo, 2nd - TransferWise (profitable for 2 years now), 3rd - Revolut. 

The winner: Monzo. In my opinion, probably the most hassle-free. No need to pre-purchase currency. But the crucial difference to me is that they are a Bank. You get the full £85,000 banking guarantee with it. 

Some words of warning.
ATMs. Each of these cards allow you to take withdrawals free of charge while abroad up to £200 in any 30-day period. Exceed this and you will be charged 3%. When you do withdraw money from an ATM, always take the option to withdraw in local currency. If you don’t do that the Bank providing the ATM will do the foreign exchange for you and charge some hefty fees. 

When you are in a shop or restaurant abroad, again take the option to pay in the local currency, otherwise you will be charged by the vendors bank for the exchange. 

As mentioned, there are other providers out there, but I think Monzo looks pretty good.  

Risk Warning

This newsletter does not constitute financial advice. Remember that your circumstances could change and you may have to cash in your investment when the value is low. The value of your investment and any income from it can go down as well as up and you may not get back the original amount invested. Past performance is not necessarily a guide to the future. If you are in any doubt you should seek financial advice.                       

Max Tennant - June 2018

Asad Siddiqui