The spending power of sterling (From The Northern Echo)

The spending power of sterling

10:55am Tuesday 8th April 2008

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HERE is a cheering thought as your inflation - busting council tax bill hits the doormat: get the brochures, book a holiday and join Britain's biggest-ever spending binge abroad this year.

We will spend more £35bn abroad this year - about 58 per cent of that in the eurozone - against £24bn in 2000.

Frazer Millar, M&S Travel Money manager, reckons that if each of the five euro notes Brits will spend this year was placed on top of each other, the resulting pile would be 2,000 times the height of the Eiffel Tower.

But Paris isn't a place for Britons to feel wealthy abroad at the moment. A Post Office survey identifies six long-haul destinations where sterling has more spending power this year than it did last year.

In South Africa, the pound is 15 per cent stronger than a year ago.

It should also go further in Hong Kong, Jamaica, Barbados, St Lucia and the US, while the exchange rate has stayed constant in Dubai.

Helen Warburton, Post Office's head of travel, said: "Currency sales running up to Easter suggest people will hang on to their holidays.

"We sold 20 per cent more currency during March, and while this is explained partly by the timing of Easter and school holidays, it suggests holidays remain a firm priority."

The Post Office points out that, as Europe gets more expensive for Britons, we buy more and more euros - up 29 per cent in Easter week alone. More of us give Prague a wide berth, following a 31 per cent surge in the value of the Czech koruna against sterling in the past 12 months - the Post Office says British demand for the koruna is down nearly 16 per cent.

In Beijing Olympics year, the Chinese yuan is the latest currency to go "on demand" in 1,400 Post Office branches: walk in and take as many as you like.

Although the Post Office's move into foreign currency in 1993 accelerated the move to commission free dealing - and repurchases of unspent cash after the holiday - the sector offers clearly rich pickings for big players.

According to Stephen Heath at prepaid currency debit card provider fairfx.com, travellers pay as much as 12 per cent more for foreign currency at airports including Luton, Birmingham, Manchester and Bristol, instead of buying online.

Meanwhile, cardholders using plastic abroad, says uSwitch, the independent price comparison and switching service, pay fees of £686m - £368m on credit cards and £318m on debit cards and cash withdrawals.

Card holders face four charges on transactions abroad: ● Exchange rate loading fee - the average is 2.66 per cent for credit cards and 2.28 per cent on debit cards, added by most credit and debit card companies; ● Debit card purchase transaction fee: nine debit cards now levy this fee, averaging £1.19; ● Cash withdrawal fee: usually a percentage of withdrawal, 1.50 per cent on debit cards and 2.67 per cent on credit cards; ● Dynamic currency conversion: typically four per cent, charged when retailers convert transactions into sterling instead of using the local currency. Always ask for local currency to be used to avoid this four per cent fee.

Mike Naylor, personal finance expert at uSwitch, says: "Charging a fee for every purchase made overseas on a debit card is a lucrative bandwagon. Debit card holders with a bank levying these charges should think carefully before handing their card over the counter while abroad."

Mr Naylor's advice for keeping costs down is to take some local currency, exchanged free of commission - plus a Nationwide BS debit card which doesn't charge for purchases or cash withdrawals overseas.

Post Office and Nationwide BS credit cards don't charge exchange rate loadings - but do charge for withdrawing cash.

One of our biggest tour operators Thomas Cook, now a FTSE- 100 company, wants to double revenues from financial services between last year and 2010.

Hence its new Thomas Cook Credit Card, launched in conjunction with Barclays Bank: like the Nationwide BS card, it charges no foreign currency loading fee, and promises a perpetual zero per cent rate for three months on any spending at Thomas Cook branches, and makes no credit card charge on purchases at Thomas Cook. Interest charges on balances from other spending are 17.9 per cent.

On foreign exchange, the card doesn't levy the cash advance fee which begins ticking when you get cash on many other cards. It also awards Thomas Cook "travel pounds" - at the rate of one per cent on all spending, and two per cent on products purchased through Thomas Cook.

"If you spend £2,000 on the holiday and spend £1,000 in resort, you could save £168 by avoiding usual currency charges," says Mark Nancarrow, of Thomas Cook.

However M&S Money cardholders in the M&S Travel Club can get up to ten per cent off a Thomas Cook holiday, zero per cent interest for six months on any purchases with a new card and also collect points which buy vouchers in M&S stores.

The M&S Money card, however, does levy a foreign currency loading fee - and has no plans at present to change this.

Frazer Millar, at M&S Money, says: "Saving money on foreign currency is horses for courses.

Don't use a credit card to get cash from a hole in the wall abroad, because you are clobbered with a foreign loading fee, cash advance fee, and a higher interest rate than you pay on retail purchases.

"On meals in restaurants, credit cards make sense - providing you pay off the balance without incurring interest charges. The only risk is dynamic currency conversion - and, possibly, getting your card skimmed.'' Given the complexity of charges facing card users, and high charges on foreign currency at airports, it is hardly surprising that the choice of prepaid cards is expanding fast: leading suppliers including the Post OfficeVISA, CaxtonFX, FairFX and Club 18-30.

The prepaid card, useful in controlling the spending of students on gap year travels by allowing regular top-ups by cash, bank transfer or credit card and in convenience stores with Payzone and Paypoint chains, avoids interest charges, late fees and balance transfer fees.

Before travellers depart, they need to know how tops-ups will be permitted on each card.

Some only allow top ups face-toface, others by internet and phone.

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