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Pound nears an all-time low: should you lock in your travel money now?

Find out how to make the most of prepaid cards

The pound hit a 10-month low against the euro this week – with £1 buying you just 1.09 euros. In fact, sterling is almost at its lowest-ever rate against the European currency, not seen since the 2008 financial crisis, when it crashed to 1.03 euro.

Some analysts believe that the pound and the euro could reach parity by the end of the year.

The pound has been driven further down by inflation figures published this week, which revealed that the consumer price index stayed steady at 2.6% in July. With the ongoing uncertainty on the UK’s future relationship with Europe following the Brexit vote and the instability of minority government, the pound’s value is weakening.

Rising inflation tends to strengthen the pound, as it makes the possibility of an interest rate rise more likely – and higher rates of return make sterling a more attractive investment, boosting its value.

The pound to euro could fall further

According to global investment bank RBC Capital Markets, there’s a 30% chance of yet another UK general election being called next year, which will add another level of uncertainty. Bookmaker Paddy Power is currently offering odds of 15/8 for a general election being called in 2018.

Analysts from both HSBC and Morgan Stanley believe that the pound will fall further and could trade one-for-one with the euro at the wholesale rate, used by investment bankers, by the end of 2017 or early 2018. This would be the first time this has happened in the euro’s 18 year history.

The graph below shows the value of sterling against the euro over the past 15 years.


Brexit and your finances


Lock in exchange rates with a prepaid card

If the most recent analysis is to be believed, it may be worth exchanging your travel money now. You can do this by locking in today’s exchange rate with a prepaid card.

Prepaid cards generally come in three currencies;

With dollar and euro prepaid cards, the exchange rate is fixed at the time of loading, which can be an advantage if you expect currency rates to fall.

You load money onto a prepaid card and use it to withdraw cash or make purchases while overseas. Unlike credit cards, there is no borrowing facility. As it’s not possible to spend more than the pre-loaded amount, you’ll never have to worry about interest charges.

Prepaid card providers don’t do any credit checks on applicants – there’s no credit involved – so if you have a poor credit rating, this type of card is a good option.

What exchange rate will I get with a prepaid card?

With sterling prepaid cards, the exchange rate is decided when you make a transaction using your card, rather than locking an exchange rate beforehand.

Two prepaid cards, Monzo and Revolut, stand out – Monzo gives you the Mastercard rate, while Revolut gives you the interbank ‘spot’ rate – the best you can find. Neither charge fees for cash withdrawals or card spending, although Revolut’s card comes with some restrictions.

You can find out more about these cards in our guide to challenger banks.

Most other euro/dollar prepaid cards set their own exchange rates, which include a mark-up or commission, or will charge additional fees.

Indeed, almost all of the 35 plus prepaid cars on the market will charge you at least one of the following fees:

  • Application/ replacement fees (as much as £10)
  • Monthly admin fees (as much as £5)
  • Top up fees: as much as 3% of the value of each purchase
  • UK and overseas cash machine withdrawal fees (normally up to £3)

Prepaid cards: what to watch out for

Car hire firms and petrol stations are unlikely to accept a prepaid card, so make sure you bring a debit or credit card. You may be able to use your prepaid card to hire a car but the firm will want a credit card for the excess deposit authorisation.

You also won’t benefit from ‘Section 75’ protection when spending on a prepaid card, which entitles you to a refund on spending between £100 and £30,000 on a credit card should something go wrong. You may want consider paying for the hotel or flights on a credit to qualify for this protection.

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