Update note 14 June 2016: I wrote this blog in March and the logic still stands (I’ve also speedily updated the products and exchange rates) and if you click the links it takes you through to the current write-ups for each deal.
The pound has tanked in recent months. Last year £1 bought you as much as €1.43, now it’s just €1.26. Against the dollar, last year’s high was $1.58, now it’s just $1.42. Much of this is on the back of the uncertainty about the EU referendum.
A growing number of people have asked me about it, and my mailbox and Twitter feed have seen questions like this…
— Sarah (@just5arah) March 13, 2016
So, I wanted to bash out my answer.
While the current rates look poor compared with last year, actually go back two years and a pound bought €1.20, and the year before that €1.15 would’ve been worth whooping about. So it’s lower but not anomalously so.
The EU referendum has caused uncertainty, and currencies are always hit by that. Yet trying to fathom out the future isn’t easy. The only sure thing is that, until the vote on 23 June, there will be more uncertainty and the vote will have an impact, one way or the other.
And yes, I am being deliberately vague. That’s because many things affect a currency’s strength – the economy, interest rates, market sentiment, political uncertainty and more. Plus, more important is the fact exchange rates are a measure of two currencies against each other – how the currency moves depends on those factors in both economies.
Trying to second guess any of that is a pure gamble. Professional currency speculators don’t always get it right. Anyone who tells you “I know what’ll happen” is a liar, self-deluded or a fraud.
Therefore, unless I find a cheap crystal ball somewhere, I certainly won’t be making predictions.
Forget second guessing the market, instead examine your OWN attitude to the current rate
Whatever happens to the euro rate in future is out of your control. So forget trying to guess the market and instead ask yourself:
“Would I be happy to get a rate of €1.26 for my holiday money..?”
If your answer is “It’s a decent rate, I could have a reasonable holiday on that, and my real fear is it getting worse because that’d make things unaffordable” – then go safe and buy now (or at least some of your currency now). However if you do that and the pound strengthens, and in hindsight you’d have been better off waiting, don’t let the bitterness ruin your holiday.
Personally it wouldn’t bother me. So I don’t do speculation. Instead, I just ensure I always get the best rates on the day.
The easy way to do this is with bureau busting, specialist travel credit cards. The two top picks right now are Halifax Clarity and Creation Everyday, which give near perfect exchange rates in every country, so just pocketing one means you know you’re getting a good deal. Though you do need to pay them off IN FULL each month to minimise interest.
Then if you’re really cool, funky and, ahem, down with the kids like me, you can put them in your overseas wallet.
How to lock into the current rate
If you do decide you’d like the safety of grabbing some foreign exchange for your holiday now, in case things get worse, there are a few different and easy ways to do this:
- Get yourself euro cash. To do this, use our TravelMoneyMax.com Travel Money Comparison, which shows you the best all-in rate for collection or delivery.
However, be sure you’ve somewhere secure to put the cash. Some travel bureaux let you buy ahead and then send you the cash at the locked-in rate nearer the time, but if you do this and the bureau goes bust, you’d likely lose your cash as there’s little protection. So I’d avoid that.
- Load up a prepaid card. These are effectively modern-day travellers’ cheques but used like a debit or credit card. You must load cash on them in advance, and the rate you get is the rate on the day you load. But don’t assume the cards are all the same – there can be huge differences in rate. See Top Prepaid Travel Cards for our top picks.
- Get a UK euro bank account. This is only really worth doing if you often travel to Europe (perhaps you own a holiday home) – or spend substantial amounts. A few UK banks offer these, including Citibank, Barclays and Lloyds Bank (monthly fees may apply, so check). They operate as a normal bank account but in euros. If you’re depositing cash, the bank will usually do the conversion for you, but be careful as the rates are often awful – so don’t do it automatically, check in advance.
You can often call the bank to try to negotiate a better conversion rate (especially for larger amounts). Alternatively use one of the international money transfer firms to deposit the cash there for you.
- Send money to an overseas bank account. If you have an overseas euro account (again, likely for those with second homes in Europe), then sending money to it will do the job. However, watch the conversion rate. An international money transfer firm will often improve it for you.
What will you do?
So where do you sit on this? Are you ‘buy now to at least be sure it won’t get worse’? Or a ‘play the best rate on the day’-type? Do let me know via the discussion box below.