The new cheapest way to get foreign currency

The best value places to get your foreign cash are certainly not what you'd expect.

Getting foreign money from bank counters, Marks & Spencer, the Post Office or at airports is always expensive. Even if they're commission free, they give you a terrible exchange rate when you hand over your pounds.

Going to a small bureau on the high street – either here or overseas – is often surprisingly good. In all my periodic tests over the years I have found that many of them pay better than all the online providers, such as Travelex, even though they are often touted in the press as the way to get foreign currency.

However there is an even better way that beats all of these by quite a distance, and that is to use debit or credit cards -- and debit cards are the best. However, just a handful can truly be called cost free. To start with most add both fees and commission.

Then there's the exchange rate.

Let's not forget the exchange rate

Before I reveal the cards that give us the cheapest way to get foreign currency, it's worth looking at the exchange rate issue in a little more detail.

There are a number of debit cards that now claim to cost nothing when you use them abroad. Indeed, many of them do have no fees and charge no commission, but what is typically overlooked by many of my colleagues in the media is the exchange rate used.

It's all very well saying there are no fees or commission, but if your debit card withdraws €100 and you have to pay £95 for it when other fee and commission-free banks would have charged you just £90, that's a big cost to you. And it's all because of the hidden exchange rate, where the bank can take a slice of the action: even though it appears to be free, it isn't.

Most debit cards these days are VISA or MasterCard. Both have their own exchange rates, and these exchange rates are the best that any of us can ever hope to get. Their rates are pretty much the “real” exchange rate, the so-called “interbank rate”. If you can get that rate plus no fees or commission, that means you're paying next to nothing for your foreign currency. That's the gold standard we are looking for.

However, MasterCard once told me that banks can theoretically charge their own exchange rates, rather than use VISA's or MasterCard's own. Hence, I've called all the banks I could find who state that their debit cards are fee free and commission free to ask what exchange rates they use.

With all that in mind, here are the companies I have found that offer truly free overseas debit card transactions:

The new cheapest way to spend overseas

Norwich and Peterborough Building Society (N&P) launched a new debit card earlier this year which is fee free and commission free on both overseas purchases and ATM withdrawals. It says that its debit card has been used everywhere from France to Afghanistan.

N&P tells me that it uses VISA's own exchange rate. This means this card is as cheap as it gets.

A slightly older way to spend overseas

The first new bank in 100 years, Metro Bank, opened a year ago with promises to surprise and delight customers. It has been doing so.

If you can get to a branch (it's mainly an online service, though more branches should arrive eventually), you can get a debit card that is free for both ATM withdrawals and purchases overseas – with MasterCard's own exchange rate. This makes it as good as N&P's debit card.

The oldest cheapest way – but only for Spain

The only other card that I'm 100% sure is 100% free overseas is the Santander debit card. However, it's just free in Spain, and only for withdrawals from certain cash machines. It's not free for overseas purchases.

Santander customers can withdraw money at ATMs in its branches in Spain with no fees, no commission, and using VISA's own exchange rate.

The conditions for getting these cards

You can't just apply for a debit card; you have to apply for a current account as well. This usually comes with obligations. Here's my table to show you what those are:

We have a clear winner here for convenience, and that is Metro Bank. You can open a free current account with no strings, transfer in your foreign spending money and off you fly with your debit card.

Alternatively, you might want to support the building society, or you may decide to take advantage of Santander's 5% interest rate for one year and a £100 welcoming bonus if you use Santander as your main account, but perhaps only if you're a regular traveller to Spain.

Watch out for foreign booby traps

Overseas ATMs and retailers can add their own charges.

Retailers can add local fees, but usually how this happens is they offer for you to pay in pounds, not the local currency. They may not even offer you the choice: you go to confirm the transaction with your PIN and see that it's already in pounds.

You should never pay in pounds overseas, because VISA's and MasterCard's exchange rates will then be overridden, and you'll pay something much more expensive. If this happens to you, you should refuse this transaction – remove your card if necessary to show you're serious. It is always possible to pay in the local currency, even if the shop doesn't want to admit that to you.

With ATMs, the costs are usually easier to spot. You should be made aware of any additional charges before you agree to the transaction. You can simply cancel and find another machine.

However, just as with shops, you might sometimes be asked if you want to pay in pounds. Ultimately we all will, of course, but you should say no anyway. This will save you from a terrible exchange rate, and you'll benefit from your debit card's excellent one.

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