British holidaymakers heading to France, Spain, and Greece right now are finding life out there far cheaper than in previous years. The pound is at near record highs with £1 buying €1.39 – a huge rate compared with this time last year, when it was €1.20 or two years ago when it was €1.15.
It directly reduces the cost of eating out, trips, petrol and more once there and should indirectly reduce the cost of hotels, car hire and more when you book. Yet my mailbag and Twitter feed is full of questions like these:
"Is the election likely to affect the euro rate. Am I best buying early?" – Sandy.
"@MartinSLewis Hi, I hope you can help. Will the election outcome impact exchange rates? Should I change holiday money now or wait? Thanks." – WildPhillips.
And indeed politics does play a role in currency movements. If the markets don't like the election outcome, the pound can weaken. And things aren't looking good. The one thing markets always want is certainty, and the only thing certain about this election is that it's uncertain.
With a hung Parliament being the most likely outcome, the pound could weaken.
So far, the pound's strength has actually been about the euro
The current great rate against the euro isn't actually due to a strong pound; it's far more about a weak euro caused by the Greek tragedy. This is evidenced by the rate of the pound against the US dollar: currently around $1.51, when last year it was far stronger at $1.70.
Increasing worries about eurozone deflation and ever lower interest rates mean many professionals in the currency market have taken a positive view of the pound.
And as always with markets, there is no consensus on the future. Some City analysts say the euro will be deliberately weakened over the next couple of years, meaning the pound will consistently buy more than €1.40, while others read the euro market as getting more positive, predicting it'll move the other way.
(For a good explanation of the wider economics, see this Sunday Times piece – though it's behind a paywall.)
Should you buy now? The decision is far more about your personal finances
So on to the big question: "should I buy now?" Let me be honest – I don't know. All we can do is speculate and even professional currency speculators take divergent views. Even if the election outcome is the worst possible in the market's view, things in Europe could be seen as even worse, so the pound may rise.
In the last few months, it has been fluctuating up and around the €1.35 to €1.42 mark, so against today's rate of €1.39, those who've bought ahead already will be either winners or losers.
Therefore it's worth taking a step back from market movements to look at the big picture. The euro rate for people in the UK right now is superb compared with any other time in the last five years, and it certainly means holiday spending goes further than we're used to. So it is a legitimate decision to say:
"With the election coming and uncertainty around the corner, I want to bag the certainty of getting €1.40 right now as that'll be decent for my holiday."
This is an especially good idea if your holiday would be unaffordable if the pound dropped. Yet if you do decide to go for it, then do it with the mind-set that you won't worry if the pound gets stronger.
This is all about whether you're capable of saying to yourself, "I did it for the right reason, to get certainty," and that you won't have your holiday ruined by constantly thinking, "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 easy ways to do this – if you're very financially savvy you could look at buying a forward contract on the market at various rates – but I'm going to stick with more mundane methods of locking in today to spend tomorrow.
- 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. However, if you do this and the bureau goes bust, you'll 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 up cash 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. Our top picks right now for euros are Ukash* and FairFX*. See our Top Prepaid Travel Card for a rundown of the best right now and what the security is on this cash.
- 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.
- 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.
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.
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 card is the Halifax Clarity* due to it having the lowest ATM fees. Of course you need to ensure you repay it IN FULL to minimise the 12.9% representative 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.