Should you buy euros/dollars now before the EU referendum vote?

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. Some of this is on the back of the uncertainty about the EU referendum.

Back in March I wrote a blog responding to the huge number of questions about the impact of the referendum on holiday money. And since then, they’ve kept coming, such as these on my Twitter feed:

Now we’re getting closer to the referendum itself, I wanted to bash out an update, including a possible trick to beat the system.

It’s first worth putting the current situation in perspective. While the current rates look poor compared with last year, actually go back two years and £1 bought €1.20, and the year before that, €1.15 would’ve been worth whooping about. So it’s low, but not anomalously so.

Much of this is about uncertainty

The EU referendum has caused uncertainty, and currencies are always hit by that. Yet trying to fathom the future isn’t easy. The only sure thing is that, until the vote on 23 June, there’ll be more uncertainty and the vote will have an impact, one way or the other.

However, as we get closer and the likelihood of an out vote looks more plausible, it’s not controversial to say,  if that does happen, the immediate impact is likely to cause the pound to weaken further (ie, a pound will buy fewer euros, dollars, etc), and possibly substantially.

I’m not making a judgement by saying that. An out vote would be a big change – for good or bad depending on your opinion – and the markets hate change. So in the short run, it will likely hit the currency (though there’s no certainty). If we vote in, as no change is likely, it is of course possible the pound will strengthen.

While many other factors can affect currency movements – such as general economics, speculation, relative interest rates – at the moment if you try to predict what’ll actually happen to the pound it incorporates a big gamble on the outcome of the referendum.

Even many professional currency speculators will get it wrong. Therefore, unless I find a cheap crystal ball somewhere, I certainly won’t be making predictions.

PS: Read my How to Vote in the EU referendum blog for help making your decision.

Ask yourself what rate is good for you?

Whatever happens to the euro rate, the 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. 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.

For those stuck on what to do, there are a couple of halfway houses. To hedge your bets, simply buy half of what you’ll need now (using the methods below) and leave half until after the referendum. For another possible alternative, see the trick I’ve added at the end of this blog. (Or see the trick below for another halfway house.)

Personally 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.

A possible trick to beat the system

Big bureau de change Travelex has a ‘buy back’ promise on its foreign currency. So pay £4 when you buy, and you get a right to sell it back your currency at the rate you bought at, within 45 days.

Now, its rate isn’t usually as good as the top bureaux on TravelMoneyMax. Yet it does mean if you buy now, and the pound gets a lot worse, you’ve done well. If the pound strengthens, you can sell the currency back to Travelex at the rate you got it, and then buy your holiday money at the new better rate.

This on the surface is a good option, but I’ll be honest, we’re in the midst of checking it out (and some other firms have suspended this for the referendum); I’ve not dotted all the i’s and crossed the t’s, we plan to do detailed work over the next few days and will include it in the next weekly email.

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.