Lloyds, TSB and Halifax are charging customers as much as 2.99 per cent in foreign transaction fees on card payments abroad this summer, working out at nearly £30 on every £1,000 spent, according to finance experts at Moneyfacts.
A range of banks charge no such fees and can be opened within minutes. Switching does not have to affect a customer's existing bank accounts, and some providers offer a bonus for switching a current account. In some cases, a new digital card can be used within minutes of setting it up through the bank's smartphone app.
Best bank overall for travellers
First Direct has zero fees on overseas spending and cash withdrawals using its debit card, and offers a £250 interest-free overdraft for emergencies. The bank also gives customers who switch their current account a £175 bonus, although the switch takes seven working days and it can take more than a month for the bonus to arrive.
Customers get instant access to their current account once approved, along with a virtual card to use straight away. First Direct says 99 per cent of customers receive their physical card within six days.
In the latest survey of banking customers produced for the Competition and Markets Authority, 74 per cent said they would recommend First Direct to friends and family, placing the bank fourth for overall quality. Rachel Springall, a finance expert at Moneyfacts, said First Direct's customer service was "high standard, with 24/7 phone support, so that should give customers peace of mind if they run into any problems".
Best pre-paid card for exchange rate
Using a usual debit or credit card abroad typically means getting Mastercard or Visa's exchange rate, depending on the bank's preferred payment network. These are set once a day at a fraction above the rates stated by the European Central Bank.
On July 28, Mastercard would have converted £1,000 to €1,170.55, while Visa would have converted the same sum to €1,173.53, not factoring in any bank fees, a difference of €2.98. An alternative is the interbank rate, the live rate at which banks exchange currencies, which can sometimes work out better than the rates set by Visa and Mastercard.
Investment platform Trading 212 offers a pre-paid card that uses the interbank exchange rate. Customers would need to spend thousands of pounds to notice any real savings, but the card charges no foreign transaction fee and allows withdrawals of up to £400 a month in cash for free. Customers can also earn 3.8 per cent interest on their cash. A physical card costs £4.95 to have delivered, while the virtual card is free and can be used immediately after opening an account.
Experts say holidaymakers should avoid using airport services to change currency at the last minute, and when given the choice of paying in pounds or the local currency at an ATM abroad, should choose the local currency to avoid an expensive mark-up from a foreign bank.
The best credit card for travel
Credit card providers charge as much as 2.99 per cent on foreign transactions, and some charge even more on cash withdrawals, including a 3.99 per cent fee from Tesco on top of a 2.75 per cent foreign exchange fee. Taking out £500 in local currency using that card would cost £33.70.
Cards exist that charge neither fee. One top pick is the Lloyds Ultra Credit Card, which has no foreign transaction or cash withdrawal fees and offers 1 per cent cashback on all card purchases in the first year. The interest rate is 14.9 per cent on purchases, a representative rate not everyone receives. Cards should arrive within five to seven working days, and Lloyds says customers should see their card details in the app within "just a few days", allowing digital use through Apple or Google Pay.
Unlike the grace period allowed to clear a balance on purchases, interest on cash withdrawals is charged from the moment the cash is in hand. Anyone applying for a credit card should check their eligibility first, which will not affect their credit history.
Holidaymakers also get extra protection when they pay by credit card. Goods or services that are not received and are valued between £100 and £30,000 are covered under section 75 of the Consumer Credit Act.
Best app-based bank for travel
Digital challenger banks such as Chase, Monzo and Starling have become popular with travellers because they charge no foreign transaction fees. Accounts are app-based and take minutes to open, and cards can usually be used straight away by adding them to a digital wallet, although there are usually restrictions on cash withdrawal amounts.
Starling offers more flexibility on cash, allowing withdrawals of up to £300 and up to six withdrawals a day. Chase lets customers withdraw £500 a day but caps withdrawals abroad at £1,500 a month. Monzo's standard account allows £400 fee-free every 30 days in the UK and Europe, with no restriction if Monzo is a customer's main bank.
Kate Steere, from comparison website Finder, said: "If you're after a slick app with genuinely useful budgeting tools like Spaces for saving for your holiday and Settle Up for splitting expenses, Starling is the one to go for."
When withdrawing cash, experts advise looking for ATMs operated by local banks to keep costs low, since these often charge a lower flat fee.
