Why Experts Say You Should Buy Half Your Vacation Cash Now and the Rest After the Election

Tourists traveling abroad this summer can boost their spending money by up to 60 per cent compared to last year by exchanging pounds for foreign currency this week.

Families with trips booked for later this year may find that buying their holiday money now will give them the best deal, following a recent rise in the value of the pound.

Last week, sterling hit its highest level against the euro in almost two years. On May 29 it was trading at 1.1785 euros, the highest level in 21 months.

But experts warn that uncertainty around the upcoming general election could cause further swings in the currency, for better or worse.

This means those who wait until next month to withdraw their foreign cash could be left worse off. However, they could be rewarded with a better exchange rate if confidence in Britain increases.

So when is the right time to shop for vacation money and how should you do it?

The rise of the euro by the pound

The pound has performed well against the euro recently thanks to the UK’s persistent inflation rate, which has not fallen as quickly as expected.

This has dashed hopes of an early interest rate cut, as the Bank of England is not expected to cut the base rate until later in the year.

Meanwhile, the European Central Bank (ECB) is widely expected to cut interest rates tomorrow in the first move since September, as European inflation levels continue to fall.

Currencies tend to be stronger when the country’s interest rates are high. This is because investors are more likely to move their funds into the country for higher returns. This drives the demand for a currency and therefore its value.

Thanim Islam of currency specialist Equals Money says: “The pound is more attractive currently, so it makes sense to buy most of its foreign currency now.”

On Monday the pound was trading at an average of 1.1741 euros, according to currency specialist Monex, but tourists won’t get that exact rate. Intermediary companies that make the exchange for you usually offer different rates to make a profit.

Turkish lira plummets

The pound has strengthened in value against 22 of the 26 best-selling currencies over the past year, according to the Post Office’s exchange rate monitor, which uses the exchange rate for customers buying at least £500 in currency .

The value of the pound against the Turkish lira rose 59.4 percent over the past year, the largest year-on-year increase of the 26 currencies.

This means tourists receive 18,292 lire for their £500, compared to the 11,476 they would have received a year ago.

This is an extra 6,816 lira, which could buy two nights in a three-star hotel in Istanbul this August.

However, Turkey has seen a huge price rise, with inflation reaching more than 75 percent in the year to May.

The pound has gained 2.6 percent in value against the US dollar over the past year and visitors to Japan will now get 15 percent more yen per pound than they did 12 months ago. Meanwhile, the pound has risen 1.2 percent against the euro.

A family of four spent an average of £2,550 on food, drink and entertainment during a nine-night holiday abroad last year, according to research by data firm NimbleFins, which used figures from the Office for National Statistics.

A family visiting Europe last summer would have gotten €2,917 to spend abroad for their £2,550, according to Post Office Travel Money, based on the fee paid on exchanges of at least £1,000.

This year its 2,550 pounds sterling rises to 2,938 euros. Experts say now is a good time to buy most of the euros you will need before summer trips, as there is a big risk that the pound will weaken in the coming weeks due to the general election.

The huge gap between Labor and the Conservatives in the polls has been a boon for sterling because of the confidence markets have in the result, according to Nicholas Rees of analysts Monex.

“Election polls are in the sweet spot for sterling,” he says. ‘Pre-election nervousness is negative for the currency, but this time it is not like that. Labor is way ahead.”

Likewise, Islam warns that a slight uptick in the eurozone inflation figure published last week could cause the ECB to delay an interest rate cut, contrary to expectations.

While Rees also warns to watch out for potential risk events, he expects the pound to rise to €1.19 in the next three months before plateauing, so it might be worth waiting to buy holiday money.

Hedging your bets

Tourists who are worried about future changes can hedge their bets. Simon Phillips of No 1 Currency, a travel money specialist, advises converting half the money he will need now and keeping an eye on rates as the holiday approaches before converting the rest to limit risk.

“Buy some today because the price is really good and then see what happens,” he says. ‘If it gets worse, quickly buy the rest. You won’t get the best rate, but no one knows when that will be.

Meanwhile, if you’re traveling to Turkey, Phillips recommends purchasing the currency closer to your departure due to the way Turkish lira rates have been moving.

Islam advises watching exchange rates after events considered to carry potential risk, for example the Bank of England’s upcoming Monetary Policy Committee meeting on June 20 or the general election on July 4.

Buy the best offer

Companies offer several rates at the same time, so you should compare prices to find the best deal.

Tourists who bought their euros online at the post office on Monday received 1,152 euros per £1,000, or 1.1522 euros per pound.

It changes the rate based on the amount converted at once, so the more you spend, the better rate you’ll get.

The exchange rate was slightly better when buying euros on the Marks & Spencer website. Tourists could get 1,153 euros for 1,000 pounds sterling, an exchange rate of 1.1536 euros per pound. Meanwhile, No 1 Currency’s online service offered €1,149 for £1,000.

But rates can differ between online websites and their equivalent business offices, so check which one offers the best deal.

In the M&S store, for example, on Monday the price was only 1.1325 euros per pound, so 1,000 pounds were worth 1,133 euros, more than 20 euros less than if bought online.

Cash or card?

Carrying cash can help with budgeting expenses and provide security for travelers in case of an emergency. But passengers can also load money onto a prepaid travel card and set an exchange rate.

Another option is to preload the money in pounds, which will then be converted to the desired currency at the exchange rate on the day it is spent.

The Wise prepaid travel card offered €1,170 for £1,000 on Monday, after a fee of £3.49. This means almost €40 more for the customer than if they went to an M&S office. Buying the card costs £7.

But be careful if you use a prepaid card as your sole or primary form of payment, as some places abroad may only accept cash.

Laura Plunkett, head of travel money at the Post Office, advises travelers to carry cash and a travel money card.

Tourists should never rely solely on a debit card, Phillips says, but it can be part of a balanced mix of payment methods.

Travelers often use debit cards abroad; Their use, excluding ATMs, increased by 42 per cent between 2019 and 2023, Lloyds Bank research shows.

On Monday, Lloyds Bank announced free use of overseas debit cards for customers with platinum and silver accounts from 1 July.

Starling Bank, First Direct and Chase Bank are among the providers offering fee-free debit cards abroad.

These use the Mastercard exchange rate, which on Monday was 1.1766 euros per pound, meaning that 1,000 pounds bought 1,177 euros. This is a higher rate than the Post Office or M&S, but you cannot fix this rate in advance.

Mastercard conversion rates are specific to when your bank authorizes the transaction, so if rates go down, you’ll get fewer euros per pound compared to buying your holiday money now.

Skip the walk to the airport

Don’t leave your currency purchase so late that you are forced to exchange it at the airport.

Tourists will be disappointed as rates are often worse than those of major providers or prepaid travel cards.

l.evans@dailymail.co.uk