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Which is the best way to pay for goods and services on holiday? Should you use your plastic, traveller's cheques or cash? Read our feature to find out which method will make your spending money go further, which is the safest way to pay and the most convenient.

Debit cards

Using your debit card to get cash abroad as and when you need it is safer and more convenient than changing a big wad of money into the local currency. It can also work out cheaper because your card issuer will give you a better rate of exchange than a bureau de change.

There's a catch, however. Most card issuers charge a hidden loading fee when you use your card abroad, both for withdrawing cash and for purchases. This varies, but it is usually about 2.75%, which means that 100 of euros will actually cost you 102.75. Many card providers, including Lloyds TSB, NatWest, RBS, IF and Halifax also charge holders a fixed handling fee of about 1.50 per purchase on top of the loading fee, so if you're going to make lots of small purchases it will be cheaper to withdraw a lump sum from a cash machine instead.

Debit cards that don't charge any fees includes Nationwide's Flexacount Visa Debit. Some overseas banks, especially in the US, will charge you a cash withdrawal fee on top of the charges you'll pay your card provider, so it's worth looking around for a bank that doesn't.

Top tip :

Always insist on paying for goods in the local currency rather than pounds as the rate of exchange the retailer charges will be worse than the one available from your card provider.

Credit cards

Credit cards usually apply similar loading fees to debit cards but they don't add a fee on top, so they can work out cheaper than debit cards when paying for goods or services, but not for withdrawing cash because they charge interest on a daily basis, even if you clear the amount in full as soon as you get your statement.

One of the other benefits of paying with your Visa or MasterCard is that this will provide you with financial protection if anything goes wrong with any goods that cost 100 or more. Under Section 75 of the Consumer Credit Act, you will be able to claim against your card issuer rather than pursuing the retailer, who might be difficult to contact once you return to the UK.

Top tip :

Let your card provider know you're going abroad and might be spending more than usual, otherwise they may put a block on your account if they spot any unusual transactions.

Prepaid cards

An alternative to carrying a credit or debit card is to use a prepaid card, such as the Tuxedo Prepaid Maestro. It's safer than carrying cash and easier to keep a track of your spending as you load the card with as much as you want to spend before you set off on holiday.

Cash

Even if you plan to use your plastic for most of your holiday spending, you'll need at least a little cash for cabs, tips and the odd small purchases. so you need to shop around for the best exchange rates. Never, ever buy currency at the airport if you can avoid it because these bureaux de change rarely offer the best rates.

Don't assume that you'll get more for your money at those banks that trumpet commission-free currency as they sometimes offer a poorer exchange rate. Moneysavingexpert.com has devised a handy online tool, Travel Money Maximiser, which trawls the web for the best deal of the day for any given currency.

Traveller's cheques

These were invented before you could get cash from ATMs overseas, but they are still handy when travelling to areas where there might not be a convenient hole-in-the-wall. They are safer than carrying loads of cash but less convenient and more expensive as you have to pay to exchange them for money.

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