Holidaymakers jetting off abroad this summer can boost their spending money by up to 60 per cent compared with last year if they exchange pounds for foreign currency this week.
Families with trips booked for later this year may find buying their holiday money now will give them the best deal, following a recent surge in the value of the pound.
Last week, sterling hit its highest level against the euro in almost two years. It was trading at €1.1785 on May 29, the highest in 21 months.
But experts warn that uncertainty surrounding the forthcoming General Election could spark further swings in the currency — for better or worse.
This means those who wait until next month to take out their foreign cash could be left worse off. However, they may be rewarded with a better exchange rate if confidence in Britain rises.
So when is the right time to buy your holiday money — and how should you do it?
The pound’s euro climb
The pound has performed well against the euro recently thanks to the UK’s stubborn rate of inflation, which has not fallen as quickly as expected.
This has dashed hopes of an early cut in interest rates, as the Bank of England is not expected to cut the base rate until later in the year.
Meanwhile, the European Central Bank (ECB) is widely expected to cut interest rates tomorrow in the first move since September, as European inflation levels continue to drop.
Currencies tend to be stronger when interest rates in the country are high. This is because investors are more likely to move their funds into the country to bag higher returns. This boosts demand for a currency and, therefore, its value.
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Thanim Islam, of currency specialist Equals Money, says: ‘The pound is more attractive currently, so it makes sense to purchase the majority of your foreign currency now.’
On Monday sterling was trading at an average of €1.1741, says foreign exchange specialist Monex — but holidaymakers won’t get this exact rate. Intermediary companies that make the switch for you typically offer different rates to make a profit.
Turkish lira tumbles
The pound has strengthened in value against 22 of 26 best-selling currencies over the past year, according to the Post Office exchange rate monitor, which uses the rate for customers buying at least £500 worth of currency.
The value of the pound against the Turkish lira has increased by 59.4 per cent over the past year, the highest year-on-year increase of the 26 currencies.
This means holidaymakers receive 18,292 lira for their £500, compared with the 11,476 they would have received a year ago.
That is an extra 6,816 lira, which could buy two nights in a three-star hotel in Istanbul this August.
However, Turkey has seen a huge increase in prices, with inflation hitting more than 75 per cent in the year to May.
Sterling has gained 2.6 per cent in value against the U.S. dollar over the past year and visitors to Japan will now get 15 per cent more yen to the pound than they did 12 months ago. Meanwhile, the pound has increased 1.2 per cent against the euro.
A family of four spent an average of £2,550 on food, drink and entertainment during a nine-night holiday abroad last year, according to research from data firm NimbleFins, which used Office for National Statistics figures.
A family visiting Europe last summer would have got €2,917 to spend abroad for their £2,550, according to Post Office Travel Money, based on the rate paid on exchanges of at least £1,000.
This year their £2,550 stretches to €2,938. Experts say now is a good time to buy most of the euros you will need ahead of summer trips, as there is a strong risk the pound could weaken in the coming weeks due to the General Election.
The huge gap between Labour and the Conservatives in the polls has been a boon for sterling because of the confidence markets have in the outcome, according to Nicholas Rees, of analysts Monex.
‘The election polls are in the sweet spot for sterling,’ he says. ‘Pre-election jitters are a negative for the currency — but that’s not the case this time. Labour are miles ahead.’
Likewise, Mr Islam warns that a slight uptick in the eurozone’s inflation figure published last week could cause the ECB to delay a cut in interest rates — against expectations.
While Mr Rees also warns to watch out for potential risk events, he expects to see the pound trending upwards to €1.19 over the next three months before flatlining — so it could be worth waiting to buy holiday money.
Hedge your bets
Holidaymakers who are concerned about future swings can hedge their bets. Simon Phillips, of travel money specialists No 1 Currency, advises converting half of the money you will need now and keeping an eye on rates as your holiday approaches before converting the rest to limit the risk.
‘Buy some today because the rate is really good and then see what happens,’ he says. ‘If it gets worse, quickly buy the rest. You won’t get the best rate but no one knows when that will be.’
Meanwhile, if you are travelling to Turkey, Mr Phillips advises buying the currency closer to your departure because of the way Turkish lira rates have been moving.
Mr Islam advises watching currency rates after events that are considered to hold potential risk, for example, the Bank of England’s next Monetary Policy Committee meeting on June 20 or the General Election on July 4.
Shop for best deal
Companies offer various rates at any one time, so you should shop around for the best deal.
Holidaymakers buying their euros online at the Post Office on Monday received €1,152 for £1,000 — a rate of €1.1522 to the pound.
It changes the rate based on the amount converted in one go, so the more you spend, the better the rate you will get.
The rate was slightly better when buying euros on the Marks & Spencer website. Holidaymakers could get €1,153 for £1,000 — a rate of €1.1536 to the pound. Meanwhile, No 1 Currency’s online service offered €1,149 for £1,000.
But rates can differ between online websites and their equivalent high street bureaux so check which is offering the better deal.
In store at M&S, for example, the rate on Monday was just €1.1325 to the pound, so £1,000 was worth €1,133 — more than €20 less than if bought online.
Cash or card?
Carrying cash can help with a spending budget and give travellers security in case of an emergency. But passengers can also load money on to a prepaid travel card and lock in an exchange rate.
Another option is to preload the money in pounds, which will then be converted into the desired currency at the exchange rate on the day it is spent.
The Wise prepaid travel card offered €1,170 for £1,000 on Monday, after a £3.49 fee. This gives customers almost €40 more than if they went to an M&S branch. The card costs £7 to buy.
But beware if you are using a pre-paid card as your only or main form of payment, as some places overseas may only accept cash.
Laura Plunkett, head of travel money at the Post Office, advises travellers to carry both cash and a travel money card.
Holidaymakers should never rely on just a debit card, says Mr Phillips, but it can make up part of a balanced mix of payment methods.
Travellers often use debit cards abroad — with usage, excluding at ATMs, rising 42 per cent between 2019 and 2023, Lloyds Bank research shows.
On Monday, Lloyds Bank announced free debit card use abroad for platinum and silver account customers from July 1.
Starling Bank, First Direct and Chase Bank are among providers offering debit cards with no fees abroad.
These use Mastercard’s exchange rate, which on Monday was €1.1766 to the pound, meaning £1,000 bought €1,177. This is higher than the rate at the Post Office or M&S, but you can’t lock in this rate in advance.
Mastercard’s conversion rates are specific to the time your bank authorises the transaction, so if rates fall, you will get fewer euros to the pound compared with buying your holiday money now.
Avoid airport hike
Don’t leave buying currency so late that you are forced to make the switch at the airport.
Holidaymakers will be shortchanged, as rates are typically worse than at high street providers or on pre-paid travel cards.
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