Get the best deal on your travel money

If you're planning a holiday, don't let travel money be an afterthought. Choosing the right option for paying for your holiday purchases could save you a small fortune and help to ensure that your break doesn't end up costing the earth.

Here we take you through the best (and the worst) ways to pay while you're abroad which could help you to make your travel money go a bit further.

Prepaid cards are an increasingly attractive option when you're travelling abroad. They work just like a credit or debit card - you can use them to pay for things or withdraw cash at an ATM, except you need to preload them with currency before you can start spending.

With a prepaid card like those available from FairFx, you pay no transaction fees on purchases and a flat fee of £1, Euro1.5 or $2 to withdraw cash at an ATM. Plus you get market leading exchange rates that mean your travel money could go much further - FairFX calculates that a family of four planning to exchange £1,500 for their holiday would get $2,347.50 or Euro1,691.25 if they used a FairFX prepaid card, compared to just $2,170.35 or Euro1,575.15 if they exchanged money at Heathrow airport.*  Apply with uSwitch and get a free FairFX Prepaid Mastercard (worth normally £9.95).  Compare prepaid cards

Credit cards are a convenient way to pay when you're travelling and give you essential legal protection under Section 75 of the Consumer Credit Act if you don't get what you paid for.

However, using the wrong credit card when you're on a foreign holiday can be an expensive mistake. Some credit cards will charge you a foreign currency loading fee of 2-3% each time you use your card. Plus, if you withdraw cash on your credit card at a foreign ATM, not only could you find yourself paying a cash withdrawal fee of 2.5-3% (with a minimum fee of £2.50-£3), you will also pay a higher rate of interest than the standard rate on your card, and you'll miss out on the usual 56 day interest free period you get on spending.

The best credit card for your everyday spending might not be the best travel credit card, so if you're planning a holiday make sure you pack the right card - one of the best travel credit cards is the Post Office Platinum card - there's no foreign currency loading fee and you get 0% on purchases for three months (16.9% APR typical variable).  Compare credit cards

Much like a credit card, using your debit card while you're abroad can be expensive if you use the wrong one. 

With some, but not all, debit cards purchases may be subject to a foreign exchange fee of 2.5-3%, as well as a retail transaction charge of around £1.50.  Meanwhile, for a cash point withdrawal you may have to pay the foreign exchange fee as well as an ATM charge of 1.5-2%, with a minimum charge of around £1.50 and a maximum of up to £5, although some banks don't cap this amount.  There are some current accounts that don't charge these fees, so check with your bank before you go.

Consumer watchdog Which? recently checked exchange rates when buying $500 and Euro500 in cash at 21 different outlets, including banks, bureaux de change, travel agents, the high street and online. It found the difference in cost between the least expensive and the most expensive was almost £50.** So if you want to get your hands on some currency before you go, it makes sense to do some research beforehand to find the best exchange rate.

When you're looking for the best deal, remember to take both the exchange rate and any commission charges into account, and don't automatically assume that commission free deals will be the cheapest.  Look online and on the high street, and avoid bureaux de change at the airport at all costs - they offer some of the worst rates around. You could also try this travel money comparison tool to find the best rate.

1. Make sure you've got at least a small amount of the local currency on you before you arrive - it could come in handy.
2. Before you go, notify your credit card company and bank that you are planning to use your card abroad - this could help to cut the risk of your card being frozen while you're away.
3. Check that the credit limit on your credit card is high enough to cover whatever you plan to spend.
4. If you do need to withdraw cash from an ATM, a debit card is probably your best option - although you will be subject to some charges, you won't face the high rate of interest you would if you used most credit cards.

* Exchange rates as at 10am 26th May 2009.
**Which? Money contacted 21 currency providers on six occasions over three months, and obtained currency rates from the big four banks as well as selected debit and credit card providers as part of its Eurozone currency rate experiment. Which? Money asked each provider to quote them for $500 and Euro500. In all cases Which? Money assumed that payments would be made with a Maestro card to avoid cash transaction fees imposed by other card providers.