Huge boost for summer holidays as pounds rises to highest level in THREE years – what it means for your wallet
THE pound has soared to its strongest value against the US dollar in over three years.
Last night, sterling was trading at £1.3468 against the dollar – its strongest level since February 2022 – bringing good news for holidaymakers chasing the sun.
This is because a strong pound means that sterling has more purchasing power relative to other currencies.
This also means that holidaymakers can get more for their money when exchanging cash for the summer holidays.
The pound’s strength is linked to what people expect the Bank of England to do with interest rates.
Experts now expect the Bank of England to reduce interest rates just once more this year, instead of the three cuts previously predicted.
This change is due to rising costs for gas, electricity, water, and travel, which pushed UK inflation to its highest level in 15 months (3.5%) in April, exceeding economists’ expectations.
With inflation higher than predicted, the Bank of England may be cautious about making more rate cuts.
Earlier this month, it already reduced rates from 4.5% to 4.25%.
Meanwhile, in the US, experts believe the Federal Reserve will cut interest rates twice this year.
Since the UK is only expected to cut rates once, it seems more appealing to investors, pushing up the value of the pound.
Countries with higher interest rates attract investors because they offer better returns on their money.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “As a result, investors can make a better return in the UK, so money flowing here has pushed up the value of the pound against the dollar.
“If you are travelling to the US this summer, it might persuade you to exchange at least some of your cash while the pound is riding high.”
What does this mean for my money?
A stronger pound is great news for holidaymakers, as it means you’ll get more travel money when exchanging cash.
For example, if the pound-to-dollar rate is $1.34/£1, exchanging £100 would give you $134, compared to $132 just a week ago.
To make the most of your travel money, consider ordering your currency online in advance to avoid the poor exchange rates often found at airport bureaux de change.
Tools like TravelMoneyMax on moneysavingexpert.com can help you compare rates from different providers, ensuring you get the best deal.
Alternatively, overseas spending cards are a convenient option, allowing you to avoid carrying large amounts of cash while still benefiting from favourable exchange rates.
A stronger pound can also impact your pension or investments.
If you hold shares in companies based overseas, their value may be influenced by currency movements, which could affect your returns.
Using your card abroad
THERE are a number of specialist cards that can give you a great exchange rate and fee-free spending and cash withdrawals when abroad.
These cards include debit and credit cards and pre-paid cards, which allow you to pay abroad without fees or at a set exchange rate.
Check your debit card
You should always check the terms and conditions of your debit card to see if, on the off chance, you can use it abroad without any extra fees.
This can often take the pain out of having to buy currency ahead of time and rely on cash.
Your bank will automatically convert your transactions to the correct currency with the live exchange rate so ensure that you always pay in the local currency.
Chase, First Direct and Starling all offer fee-free spending when yous use their debit cards abroad.
Those without this capability could choose to link their bank account with Currensea’s Mastercard debit card via open banking.
Then when you spend or withdraw on the Currensea card, it charges your linked current account in pounds (via direct debit), avoiding the non-sterling transaction fees and ATM fees that most banks charge.
Travel credit cards
Travel credit cards allow you to spend money abroad without being hit by any fees or hidden charges.
But, they may still charge you for taking cash out.
We recommend the Barclaycard Rewards Visa because it doesn’t charge for using it abroad, and there are no fees for withdrawing cash if you pay off your bill in full each month.
You must always pay off your balance before the end of the month with these cards to ensure that any money you save isn’t wiped away by paying interest.
Prepaid card
An alternative to carrying cash or your debit card around is to get a pre-paid card.
Brands like Revolut, Wise and EasyFX all provide prepaid travel cards.
The card can hold up to 10 currencies and be used in more than 200 countries.
These cards allow you to put a set amount of cash on the card at a fixed exchange rate.
So if the rate is good now you can put money on your card, and it will stay that rate when you are on holiday.
But, these cards can sometimes have hidden costs and charges so be sure to read the small print.