More than 72.5 million Americans ventured beyond the United States for a vacation in 2016. There’s plenty of us jetting off to explore the rest of the world and, on average, we spend more than $2,000 on our holidays.
But how do we get more bang for our buck when it comes to going away for a break? There are ways to think smartly about your currency and make sure your hard-earned dollars go much further – from the moment you book your break through to the spending money that you use while you are on your vacation.
Learn to think like a trader
Currency exchange is a huge market with more than $5 trillion traded every single day. That’s enough to buy every American family two cars each. It’s a busy and popular investment choice and, by learning a little bit about this sector, you can reap the rewards when it comes to your holiday.
The good news for anyone looking to satisfy their holiday wanderlust (as opposed to exporters) is that the US dollar is in a strong place right now.
Yet, while that is good news in general, the key to getting the most for your money is to search out the places where the dollar is particularly strong in relation to the native currency. When it comes to currency exchange this means looking at those pairs in which the dollar’s performance is best. It means analysing trends over a period of time and spotting opportunities where currencies are about to become weaker.
This means being a little flexible about where you want to go on your holiday. Instead of setting your heart on one destination, think about this dispassionately as a trader. Consider that you are ‘investing’ in a location, and look for an investment that delivers good value, which probably means, whether you like it or not, popping outside of America.
That doesn’t mean settling for a bad holiday either. There are plenty of ‘bucket list’ locations that will see you get good value at the moment.
Smart holiday currency choices
Unlike a trader, however, try think beyond day-to-day or week-to-week jumps. These are the things that traders can thrive on but unless you’re taking thousands of dollars with you then they’re not quite as significant.
You might well have read headlines about the Singapore dollar recovering ground after the election of Trump, for example, but take a broader look and you’ll see that there’s value to be had in booking Singapore hotels for your break.
A dollar is still worth about 1.41 Singapore dollars in early 2017 – much better value than 1.31 in April 2015 and 1.33 last summer. Good news if the city-state is on your bucket list.
One of the biggest opportunities at the moment comes across the Atlantic with our close friends in the UK. Having taking the decision to leave the European Union, there’s a bit of uncertainty surrounding what the future will look like for the country. Negotiations surrounding the departure are only just beginning and one immediate effect of last year’s vote has seen the value of the pound fall. $1000 will buy you something in the region of £150 more now than it did last June.
Three years ago, you could head into mainland Europe and get 0.72 Euro for your dollar – now that figure is 0.94. Europe could face a tough year ahead too – with elections in France, Holland and Germany all having the potential to knock stability and cause a downturn for the currency.
Across the border in Canada it’s a mixed picture. While your dollars will get you less than this time last year – when the exchange rate reached a peak at 1.45 – you can still get about 1.35 CAD, well up from four to five years ago when the rate was 0.96. The USD/CAD graph for the last five years looks remarkably similar to that for the USD/AUD – meaning that there’s value to be had in heading ‘Down Under’ too.
You can get a guarantee
If you’ve already booked a holiday but are concerned that the currency in your destination is going to change in value then you could look to pay for a buyback guarantee – which is offered by some currency providers.
For a small fee, providers such as Travelex or American Express will guarantee to buy back unused currency at the same rate that you bought it from them.
Although this is typically seen as a product for those returning from a vacation, there’s value to be had for those concerned about currency fluctuations before a trip too. So, if you snap up some British pounds and the rate falls following a twist and turn in its EU negotiations you could then sell them using your guarantee and buy the same amount again at the cheaper rate before you’ve left home soil.
The fee is fairly small, especially when compared to the sorts of swing seen after the UK’s Brexit vote.
Holiday currency spending tips are also important
Currency exchange also matters when you reach your destination. There are a few things you can do to ensure that this works in your favour.
Firstly, when using a card abroad make sure you choose to be charged in local currency. While you might think that paying in dollars makes life easier, you will have to pay a rate that is imposed by the provider. Choosing to pay in local currency, on the other hand, means that you pay your bank’s rate, which should be lower.
You should also be careful about withdrawing cash abroad using your cards, as this could leave you with a big fee to pay. Either look for a card that gives you lower fees in the first place (The Simple Dollar picks out some sound choices here) – or try to avoid needing to draw out currency in the first place. Oh, and definitely don’t wait to draw your money out at the airport, that’s asking to be ripped off.
By understanding the foreign currency markets, looking where the dollar is at its strongest, using guarantees where necessary and avoiding expensive mistakes once you’re abroad, you’ll be able to make sure that currency exchange works in your favor and makes your next holiday a smart financial choice – as well as being a great break.