Money Guide

Travellers’ cheques – worth it or not?

Last century, travellers’ cheques were one of the easiest and safest ways to take money abroad with you on holiday or travelling on business.

But now foreign retailers are becoming less willing to accept travellers’ cheques, instead preferring electronic payment methods like credit/debit cards or prepaid travel money cards.

What are travellers’ cheques?

Provided by American Express, travellers’ cheques work like an interest free loan from you to the issuer. You pay a set amount, say £100, and receive the equivalent amount in travellers’ cheques in your desired currency, e.g. pound sterling, Euros or US dollars.

Travellers’ cheques can be bought in almost all banks, building societies and post offices before you travel. By signing the top right corner of each cheque, you then ensure only you can use them.

When travelling, you simply present your ID and travellers’ cheque(s) to retailers or merchants to pay for goods and services, or visit local banks and currency exchange bureaus to swap the cheques for the equivalent amount in local currency (subject to local handling fees).

What are the benefits of travellers’ cheques?

• They’re cheap, with commission charges as low as 1% of the total bought
• They’re safe – when signed, only the signatory (Who can produce ID) can use travellers’ cheques
• They’re accepted worldwide in banks, retailers and foreign exchange bureaus
• They can be replaced almost anywhere in the world at 24hrs notice
• They never expire so if you don’t use them, you can save them for your next trip

What are the disadvantages of travellers’ cheques?

• Increasing numbers of foreign retailers and merchants are not accepting travellers’ cheques, instead preferring credit cards or cash
• Hence, in many places travellers’ cheques are only useful for changing into local currency in banks or bureau de changes.
• The range of currencies offered as travellers’ cheques is limited

What are the alternatives to travellers’ cheques?

There are more and more alternatives to travellers’ cheques that might cost a little bit more for transactions and cash withdrawals, but which offer greater flexibility in where and when they can be used.

Credit Cards

Visa and Mastercard cards can be used in millions of places worldwide to pay for everything on your travels. They can be low cost, offer reward points, have insurance if lost or stolen and can be used for cash advances.

However, charges for using credit cards abroad can be high, with ‘loading fees’ of 2.75% when making transactions, and additional charges for cash withdrawals (local ATM providers might also charge extra). (Read more about credit card charges abroad)

Debit cards can also be used in millions of retailers and ATM machines worldwide, usually costing less than credit cards for cash withdrawals while transactions are charged at a flat rate £1-£2 each (depending on the card provider).

There are some credit cards that don’t charge commission for transactions or cash withdrawals (ATM providers might still charge), although they will charge interest so make sure you pay off your balance on your return.

The Post Office Credit Card (www.postoffice.co.uk) offers 0% commission on overseas purchases only.

The best credit cards for using abroad however, are the Abbey Zero Card (www.abbey.com), and the Nationwide (www.nationwide.co.uk) Classic and Gold Cards, which won’t charge for either transactions or cash withdrawals overseas (but are still liable to ATM providers’ fees).

For more information, check out our guide to using your credit cards abroad (http://www.creditchoices.co.uk/credit-card-charges-abroad.html).

Prepaid (‘Money’) Cards

Prepaid travel cards (or ‘Money Cards’) are fast becoming an electronic alternative to travellers’ cheques. They can be pre-loaded with a set amount of money before you travel then used anywhere that Visa is accepted.

Money Cards typically have a 1%-1.5% commission for loading money onto them. As long as transactions are in the currency loaded onto the card (e.g. Euros, dollars or sterling), there is usually no transaction charge. There is a low rate charge for cash withdrawals, on top of ATM provider charges.

Because Money Cards are separate to your bank account, if the card is lost or stolen, there’s less danger of anyone else draining your bank account before you can cancel the card.

Money Cards cards are especially useful for Gap Year students travelling alone for the first time. Because they have a set amount of money loaded on them, users can’t overspend their budget (Although they can easily be topped up by phone, online or in participating banks and post offices).

The Travel Money Card from the Post Office can be preloaded with between £50-£2,500 (£5,000 if done in a Post Office branch).

The Visa Travelmoney card from Alliance & Leicester (www.alliance-leicester.co.uk) has a £100-£5,000 limit, a flat-rate £1.50 charge per foreign transaction, and cash withdrawals are charged at Visa’s wholesale currency rates.

The Travel Money Card from Lloyds bank (www.lloydstsb.com) has a £7.50 set-up fee, after which the only charges come from overseas ATM providers.

Currency

When travelling always take some local currency to cover costs of taxis, public transport or tips.

Local currency can easily be bought at local banks or bureau de change (Although commissions are often expensive and exchange rates can fluctuate), but the best option is to get what you need for 0% commission from your local post office before you travel.

Summary

Travellers’ cheques are still a safe and easy way of taking money abroad but retailers and merchants worldwide are increasingly refusing travellers’ cheques.

Other payment methods such as credit cards and prepaid cards are more easy to use, almost as cheap in terms of commission charges and are accepted in more places worldwide.

However, with credit/debit cards commissions and transaction charges can be very expensive due to interest rates, if you don’t pay off your balance on your return home.

Instead, Visa-accredited prepaid cards from the Post Office, Nationwide and others are fast becoming 21-Century equivalents to travellers’ cheques. They offer transparent usage charges, pre-loading limits ensure you won’t overspend on your budget and because they’re not linked to your bank account, offer security if they’re lost or stolen.

Recommendations

• If using a credit/debit card, always check the charges for transactions and cash withdrawals, and ensure you can pay back the balance on your return.
• If travelling on a short-term trip or holiday on a budget, a prepaid travel money card offers a cheap and safe option.
• Always take local currency when travelling to ensure you can pay for local transport, taxis or to tip service staff.