How to cut down the costa: Andrew Bibby starts with Spain in the first of a series on dealing with holiday spending money in different countries

SPAIN remains the favourite overseas destination for the British, but the downmarket sun-and-sangria image no longer tells the whole story.

More Britons are taking short-break holidays in Spanish cities and exploring less well-known areas such as the northern coast and mountains.

The Spanish banking world is coping with the aftermath of the near-collapse of Banesto, one of Spain's most important banks (now owned by Banco Santander).

But the Banesto scandal should not affect holiday-makers.

Although Spain is not the cheap destination it was 20 years ago, visitors will find it better value this summer than France, where British withdrawal from the ERM has hit the sterling/franc exchange rate. At present, pounds 1 buys a conveniently exact 200 pesetas.

Peseta traveller's cheques are offered by Thomas Cook and American Express, but in Spain perhaps more than most countries it is possible to get by with currency and the right collection of plastic cards.

The two international credit card systems (Visa and MasterCard) can be used as widely in Spain as in Britain. Visa, for example, says that its cards are accepted in more than 630,000 places, and can also be used for drawing cash at 40,000-plus banks.

Provided you have already obtained a PIN (personal identification number), you will also be able to use your credit cards to obtain pesetas from cash machines.

Visa leads with more than 21,000 machines, while MasterCard (which has historically lagged behind in Spain) claims access to about 11,000 machines. You can ask for screen instructions to be in English.

Visa Delta debit cards can also be used at Visa outlets and machines, always assuming you have enough money in your bank account.

Of the Switch card issuers, so far only NatWest and Midland offer access to the international Maestro/ Cirrus network associated with MasterCard. (Nationwide also joined last year but was forced to pull out, after technical problems elsewhere in Europe led to some customers' cards being rejected.)

Maestro is the brand name for the point-of-sale electronic debiting network - Cirrus for the cash machine network. There are about 11,000 Cirrus-branded cash machines in Spain.

The problem with using credit and debit cards abroad is that the true costs are generally hidden from customers.

Visa and MasterCard have different systems for calculating exchange rates, but the vast majority of British card issuers also add their own 'turn' on top before debiting customers' accounts.

What is more, cash withdrawals normally attract a further fee, typically 1.5 or 2 per cent. Cash advance fees are a familiar feature of credit cards, but the same principle is now being applied - with much less justification - to debit cards as well, where no element of credit is involved.

For example, NatWest levies a 2.25 per cent (minimum pounds 1.50) fee for Maestro or Cirrus transactions.

A better way of obtaining cash in Spain is by making use of a reciprocal arrangement that some (though not all) members of the Link scheme have set up with the 4B Telebanco cash machine network. Nine British banks and building societies (including the Royal Bank of Scotland and Britannia Building Society) participate; of these, four make no charge for cash withdrawals - AIB (formerly Allied Irish), Girobank, Chelsea Building Society and Yorkshire Building Society.

Thanks to the interest rates offered, Chelsea and Yorkshire clearly top the table, so it may be worth opening holiday spending accounts with one of these societies in advance.

This way, your money will earn interest up to the moment you need it in pesetas.

Chelsea's Classic postal account requires a minimum pounds 2,500 balance but pays an extremely good 6 per cent gross (6.25 per cent above pounds 25,000). Chelsea Capital Account holders receive 2.7 per cent on deposits of pounds 1,000-pounds 5,000, rising to 4.5 per cent above pounds 25,000.

Yorkshire Building Society is competitive at lower levels of deposits, paying 0.3 per cent gross below pounds 500, 1.45 per cent for pounds 500-pounds 1,000, 2.45 per cent for pounds 1,000- pounds 5,000 and increasing to a maximum of 4.05 per cent. There are about 4,500 participating Telebanco cash machines and exchange conversions are at money market rates without an additional 'turn'.

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