AS POOR exchange rates increase the cost of holidaying abroad, British tourists are making things worse for themselves by throwing away over £5 billion a year on simple payment mistakes.

According to consumer website Money Saving Expert, £500 could buy €703 euros or $785 in 2015 but €560 and $637 now, making it more important than ever to get value for money.

Nevertheless, according to currency provider FairFX, by failing to shop around for competitive currency rates we are wasting £1.7bn a year, while taking the wrong type of plastic overseas costs us £644 million.

Falling for what is known as dynamic currency conversion burns a further £380m and unnecessary cash machine fees swallows up £190m.

FairFX chief executive Ian Strafford-Taylor said: “Consumers may be forgiven for thinking that bad currency decisions only cost a couple of pounds here and there, but our investigation reveals the true extent of how much we’re missing out.

“The fact that we’re potentially losing £5bn a year through unnecessary fees and poor exchange rates is nothing short of daylight robbery.”

Nowadays, most people rely on plastic when they go abroad as it is safer than carrying a lot of cash, but it is always wise to take currency for small purchases.

Never wait until the airport or ferry bureaux de change, though, as the rates are always poor. FairFX calculated that these last-minute transactions lose travellers an additional £92m a year.

And do not get more currency than you need. On average people bring back £78 in foreign coins and notes, which is left in drawers and often forgotten about by the next trip, wasting £2.1bn more.

Using a credit card abroad makes it possible to spread costs and offers payment protection for larger purchases, but this can come at a high price.

Most cards levy foreign exchange commission or a non-sterling transaction fee, which is typically around three per cent every time it is used.

It can be particularly expensive to access cash as, in addition to the transaction fee, most card providers charge 2.5 to five per cent for overseas ATM use, with a minimum of around £3, adding a total of up to eight per cent. A single £200 withdrawal could cost £16, with £500 costing up to £40, before any interest is added.

Unlike purchases, which come with an interest-free period, credit card cash withdrawals attract interest from the day they are made. Annual rates are frequently as high as 20 to 30 per cent and can be as much as 70 per cent.

If you plan to use a credit card abroad this summer, it is worth applying for one that does not add exchange commission. Among these are Creation’s Everyday MasterCard, which has a purchase rate of 12.9 per cent, and the Halifax Clarity MasterCard, with a rate of 18.95 per cent. Neither charges additional fees for overseas cash withdrawals.

Nationwide Building Society, the Post Office, Barclaycard, Santander, Clydesdale and Lloyds also offer cards that do not charge extra for overseas spending, but they do add cash withdrawal fees.

Debit cards are another convenient way to pay but they can be even more costly. As well as adding exchange commission of around three per cent, many – including those from Bank of Scotland, Halifax, Lloyds, Santander and TSB – charge a further fee of up to £1.50 per transaction.

Like credit cards, most levy an additional ATM fee for cash withdrawals, but they do not charge interest. This means it is better to use a debit card to access cash, avoiding small withdrawals, and take a low-cost credit card for purchases.

Do not forget to tell your credit card provider you are going abroad, though – when it sees foreign transactions it could assume the card has been stolen and block it.

If you are a frequent traveller, check what your bank charges for overseas debit card use. If you do not like what you hear, move to a cheaper one or open a second account elsewhere.

Another option is to use a prepaid currency card. This can be especially useful for those with a poor credit history, as there are no application checks.

You load the card with the currency of your choice before leaving and use it like a debit card until it runs out. If visiting more than one country, you can load sterling – and spend any leftover cash when you get home – but this may incur transaction charges.

Using a prepaid card means you cannot spend more than you can afford and the money is protected if it is lost or stolen. However, if this happens, you may have to pay for a replacement.

Charges for prepaid cards vary dramatically, so use a financial comparison site to find the best for your needs. Look for one with no transaction fees and the most favourable combination of charges for issue, foreign exchange, cash withdrawals and top ups.

For euro and dollar cards, consumers’ organisation Which? recommends AA, Bread FX, Caxton FX and Easyjet. For sterling, it likes Revolut and Monzo, which have market-leading exchange rates and no overseas spending fees.

Cash withdrawals are free with Monzo, but Revolut charges two per cent if you take out more than £200 a month. Both are managed via smartphone apps, which have to be downloaded first. Money is added using a debit card, Apple Pay or bank transfer.

For those without a smartphone, Which? rates the AA Worldwide and ICE Travellers sterling cards.

Whether you use a credit, debit or (non-sterling) prepaid card, refuse if you are offered the option of paying in sterling, as the dynamic currency conversion rate applied will invariably be poor. Some businesses do this automatically, so always check the bill before settling it.