Stash the cash, pack the plastic - and don't forget the travellers' cheques

Holidaymakers should pick and mix for security as well as savings, says Michael Drewett

Apart from contracting a serious illness, probably the next best way to ruin a good holiday is to get into a mess with money arrangements. Cash, travellers' cheques and cash cards all have their pros and cons, and the unanimous advice is to take a mixture of payment methods. Even credit card companies accept the value of travellers' cheques and they, in turn, see the benefits of using plastic.

Martin Fielding of Card Protection Plan says: "Taking a variety of payment methods allows you greater flexibility, particularly if you keep them separate so that you are not left without finance if someone steals your wallet or handbag. Cash is obviously the most convenient method to buy anything outright, but the least secure by miles. The majority of what you think you will need should be in travellers' cheques because of their ease of replacement - the drawback is that cheques and cash have to be paid for in advance whereas a credit card can spread the cost of a holiday over a longer period."

Elizabeth Phillips of the Credit Card Research Group points out that most people pay for their flights, accommodation and many general expenses in advance. But other purchases such as special dinners out, presents or perhaps unscheduled games of golf have to be paid for separately. "For these things you need the equivalent of cash. The choice is whether you pay before you go, during the trip or after your return. In real terms this comes down to ordering foreign currency or travellers' cheques before you go or taking cash out of the wall and settling later."

The card companies fight hard to get us all to "pack the plastic" for our holidays, but the long-established travellers' cheque holds its own surprisingly well. Invented by American Express in 1891, its great advantage is that it is quickly replaceable whilst not being in danger of disappearing silently into a wall as can happen with a plastic card via a cash machine. Although the chances of this happening are alleged to be slim, statistical rarity is little comfort if it does happen to you. For practical reasons, travellers' cheques still have a place.

Amex spokesman Jonathan Lavercombe says: "As travellers' cheques are exchangeable at an almost infinite number of places, the chances of anyone being financially embarrassed are almost entirely avoidable. Plastic is perhaps better for the one-off or unplanned event, but travellers' cheques are like cash without the risks. At 1-1.5 per cent of the holiday cost, there is much reassurance in the fact that if anything goes wrong the money can be replaced very fast."

Yet for all the reassurance that a travellers' cheque can give (by virtue of the fact that it cannot disappear down the throat of a machine) no one denies that plastic cards always give a better exchange rate. Of all the methods of acquiring foreign currency, a credit or charge card is cheapest because - without the extra charge-laden layers that apply to cash or cheques - plastic allows you to get as close as possible to the "wholesale" rate the banks use to deal themselves.

According to the latest issue of Which? consumer magazine, it costs about pounds 513 to get pounds 500 worth of cash and services out of a card. The equivalent cost in currency and travellers cheques would be about pounds 528. Competition between card providers means the differences are slight. One particular advantage of plastic is that the encashment of, say, currency worth pounds 20 will be at the same rate as for pounds 200 or more. On the other hand, travellers' cheques or cash are often subject to a minimum charge per transaction at a hotel desk or in a bank, making small-value exchanges extremely inefficient.

None the less, the worries of losing the plastic card loom large in many minds, and travellers' cheques seem set to be an important part of holiday finance for a long time yet. But choosing the right currency denomination can be important. In most European countries a sterling cheque will open most doors, even if the local denomination may sometimes have a marginal advantage (Spain and France). The big exception is America where a US dollar cheque is as good as cash, but anything else - including sterling - is in effect non-negotiable. In the US, the dollar rules, and nothing seems likely to change it.

Visa general manager Fiona Wilkinson says: "Wherever you may be going, we recommend taking a range of payment methods. Travellers' cheques are universally acceptable, and a little ready cash in the local currency is invaluable for arrival but don't take too much. No one wants to be a target for the local villains.

"Around the world, 13 million places accept Visa, for example, and well over 250,000 machines will let you get cash through Visa and MasterCard. If you are unsure about the facilities where you are going, the best thing to do is call the bank that issued the card you use. They are all geared up to knowing who does what best, and where."

Of all the options, cash has always been the thing you need the most when you get there, but the least attractive to take in any bulk because of security. Even more significantly for many, dreadful exchange rates for physical currency -notes- are compounded into a "double whammy" if you bring any unspent money back which then suffers the same process in reverse.

Travel agent Going Places is bucking the trend by guaranteeing that any foreign notes bought through one of its outlets will be exchanged back into sterling free of any charges after return from holiday. Travelex coin machines at airports are useful for converting pocketfuls of small change. The main thrust of planning holiday finances should be flexibility and being prepared for emergency. The major providers all suggest requesting a rise in your normal credit limit for the duration of your holiday, definitely having more than one means of payment and keeping a note of all relevant serial and telephone numbers somewhere other than in your purse or wallet.

CCP (Card Protection Plan): 0800 330000.

Visa has produced a Holiday Money 1996 guide, available by calling 0800 106076