Beware the fees when you splash the cash abroad

holiday money_Annie Shaw sees how to keep down the currency and card charges that cost British tourists £726m every year

Holidaymakers who fail to check out charges for foreign currency could find themselves paying hundreds of pounds more than those who think carefully about how they are going to pay for their purchases.

Britons holidaying in Europe could end up paying an extra 12 per cent if they use a high-street bank's debit card, compared with cheaper ways of paying, according to new findings from the price-comparison website Moneysupermarket.com.

When going abroad, most people will use a mix of payment methods, perhaps including currency and some kind of plastic for big purchases. But where you buy your money and which card you use can make a huge difference to the final cost of a holiday.

Many travel agents and bureaux de change now offer "commission-free" currency, but while this may sound a good deal, you need to keep an eye on the exchange rate. If you're changing large amounts of cash, it may be worth paying a flat-rate commission to a bank to benefit from a better rate.

If you are buying your currency on the high street, pay a visit to a post office or Marks & Spencer, as both offer competitive deals. However, if you go to a post office, you may be better off drawing cash from an ATM to pay for the currency, as some debit cards attract a "cash advance" fee.

Search the internet for the best exchange rates on offer, but watch out for delivery charges, which can be as high as £5.50.

Note, too, that exchange rates may vary between branches of the same operation: you could pay more at an airport bureau de change, say, than at a high-street branch or via the web.

More and more tourists now use prepaid cards, or "electronic travellers' cheques". These can be loaded with money in the UK and then used to withdraw currency from ATMs abroad. If your card is lost or stolen, it can be stopped and your money refunded. That said, the charges are steep and a "best buy" credit card will generally give better value.

Using your plastic for goods and services abroad is usually the best way to pay, but watch out for extra charges such as the "exchange rate loading". The standard rate for this is 2.75 per cent but some cards, such as Morgan Stanley's Buy & Fly and Platinum MasterCard, levy 3 per cent.

Lisa Taylor from financial analyst Moneyfacts warns that, in total, using credit and debit cards overseas costs UK travellers £726m a year in charges.

For a better deal, Leeds building society levies 2 per cent and Egg 2.65 per cent. Nationwide, the Post Office and the Audi card from CitiFinancial Europe impose no exchange-rate fee.

Elsewhere, the LV= card (formerly Liverpool Victoria) is free to use in the EU, as is Saga's plastic.

Some banks charge for making purchases with a debit card abroad; the highest fee, at £1.50, comes from the Halifax.

Earlier this year, NatWest raised its debit card purchase fee from 75p to £1.25, while Lloyds TSB has a flat rate of £1. Banks that do not impose this charge include Abbey, Alliance & Leicester, Barclays and HSBC.

Also beware that using a cashpoint abroad will often lead to charges of between 1.5 and 2.5 per cent.

Something else to watch out for if you are using a card to pay for goods or services is the retailer offering to bill you in sterling. This is called "dynamic currency conversion" and will almost always cost you more. MasterCard and Visa rules say that customers must be offered the choice of paying in a local currency – so make sure you do.

Some card issuers have become zealous about fighting fraud and may put a stop on a card if an unusual purchase arises, particularly abroad. So it's sensible to keep your provider informed of your travel plans.