Update: 17 November 2015: I first wrote this guide at the beginning of the year. The euro has bounced up and down since, and now it's back up at £1 = €1.43. However, the logic in the article below about whether to buy now hasn't changed a jot and stands today. So I hope you'll forgive me writing this update note for speed, rather than a new guide – Martin.
The pound has punched through the psychological €1.40 barrier today for the first time since 2007. This would've been unthinkable this time last year when you'd have done well to get €1.20 and two years ago when €1.15 would've been worth whooping about.
So the question is, should you take advantage and buy euros now, and if so, what's the best way?
It's important to understand this is more of a 'weak euro' story than a 'strong pound' one. The euro has been getting continually weaker over the last few months, with increasing worries about deflation and low interest rates (1) in the euro economy. Yet if you look at the pound against the dollar, there it has fallen in recent months.
The weak euro will indirectly reduce the cost of hotels in the eurozone (so Spain, France, Greece and the rest, but of course not Turkey) for Brits, and directly reduce the cost of fuel, eating out, day trips and more once there. No surprise then that my Twitter feed is jammed with tweets similar to this:
"I can get nearly €1.40 for my pounds now, should I be scooping this up as a bargain?"
So let me be blunt. I don't know. Nor does anyone else. Currencies move – it could get better or worse or stay the same. Even professional currency speculators don't always get it right. Many commentators were saying to buy last week at €1.38, but of course that just shows if you'd listened, you'd have lost out compared to now.
It is worth noting markets do work on psychology, so breaching the €1.40 barrier could see the rate continue to rise – yet that's still a crystal ball job.
Forget predicting the markets and ask yourself what a good rate is
It's worth taking a step back from the daily movements of the market though and looking at the big picture. The euro rate for people in the UK right now is very good compared to the past few years, and would certainly mean your holiday spending will go much further than in recent years.
So it is a legitimate decision to say "I want to bag the certainty of getting €1.40 right now as that'll be decent for my holiday".
If you do decide to go for it, then do it with the mindset that you won't worry if the euro gets even weaker, you're happy with the price you're getting. This is all about whether the upside of 'certainty' outweighs the risk that you'll look back with hindsight and say "I should've waited." Of course if the euro rate drops and you've locked in, you're on a winner.
How to lock into the current rate
There are a few different easy ways to do this:
- Get yourself euro cash. To do this, use our Travelmoneymax.com Travel Money Comparison, which shows you the best all-in rate for collection or delivery. However be sure you've somewhere secure to put the cash. Some travel bureaus let you buy ahead and then send you the cash at the locked-in rate nearer the time, but do this, and if the bureau went bust, you'd likely lose your cash as there's little protection. So be careful.
- Load up a prepaid card. These are effectively modern-day travellers' cheques but used like a debit or credit card. You must load cash up on them in advance and the rate you get is the rate on the day you load. But don't assume the cards are all the same – there can be huge differences in rate. See Top Prepaid Travel Cards for our top picks.
Get a UK euro bank account. This is only really worth doing if you often travel to Europe (perhaps you own a holiday home) – or spend substantial amounts. A few UK banks offer these including Citibank, Barclays and Lloyds Bank (monthly fees may apply, so check). They operate as a normal bank account but in euros. If you're depositing cash the bank will usually do the conversion for you, but be careful as the rates are often awful – so don't do it automatically, check in advance.
You can often call the bank to try and negotiate a better conversion rate (especially for larger amounts). Alternatively use one of the international money transfer firms to deposit the cash there for you.
- Send money to an overseas bank account. If you have an overseas euro account (again, likely for those with second homes in Europe), then sending money to it will do the job. However, watch the conversion rate. An international money transfer firm will often improve it for you.
Or just bag perfect rates whenever you go
My personal preference isn't to play the market, it's just to get the best rate whenever I go (see My Overseas Wallet blog post). This way I'm not speculating one way or the other, just ensuring I get the best value at the time I'm away.
The easy way to do this is to pocket a bureau-busting, specialist travel credit card giving near-perfect rates on spending every time in every country. Unlike most cards they don't add a 'load,' instead you get the same great rate the bank does (see the Top Overseas Spending Cards guide for full info).
The top pick cards are the Creation Everyday* and the Halifax Clarity* due to them having the lowest ATM fees. Of course you need to ensure you repay them IN FULL to minimise the respective 12.9% and 18.9% rep APR (See APR examples).
As with all credit cards, you will need to pass a credit check to get it, and there are easier-to-get cards. So use the free Overseas Card Eligibility Calculator to show which you're most likely to be accepted for.
(1) For those wondering why low interest rates means a currency weakens, here's a very quick bit of basic economics. Interest rates are the price of money, if you drop the price, there is less demand, so the currency weakens. If you think about it, would you prefer to put your savings in a currency where you could typically earn 5% interest or 0.5% interest? The first of course. So a higher interest rate (as long as there's not runaway inflation), tends to mean a stronger currency.