The best way to pay for your holidays

BeachWith summer fast approaching, Robert Powell considers the best ways to fund a holiday abroad...
An acute case of early-onset summertime seems to have hit Britain over the past couple of weeks. No sooner did the clocks jump forward than the sun came out for vast swathes of the country.

Not that this somewhat pleasant condition will last. In fact, the same column inches that were last week devoted to unnaturally warm weather are now occupied by talk of snow and ice stalking the country.

Nevertheless, the summer months are closing in, even if the weather is not. And as a result, many people will be starting to book up their overseas jaunt for the year. But what's the best way to pay for a summer holiday?

The best method
It may seem blindingly obvious, but the most frugal way to fund a summer holiday is by simply saving up the required cash. Get hold of an ISA or simple savings account and start a holiday fund. Keep stashing money away every month and by the time you come to book, you shouldn't need to borrow at all.

The best easy-access savings account currently around (with a reasonable minimum investment) is the Coventry Building Society Online Saver. The account pays out at 3.15% with a minimum investment of just £1. However the rate does include a 12 month bonus of 1.15%, so you may want to move accounts when the year is up. It's also worth pointing out that this account only allows four penalty-free withdrawals each year.

Getting hold of an ISA is also a good idea as interest will be paid out tax free. NatWest and Santander offer the best easy-access rates: 3.50% and 3.30% respectively. However the minimum deposits are pretty lofty at £30,000 and £2,500, making them unsuitable for holiday funds. Principality Building Society's e-ISA is a better bet: it pays out at 3.10% with a minimum of £1, and allows transfers in from other accounts.

But what if you want to book a holiday now, and don't have a nest-egg saved up?

Credit cards
We all know the first rule of booking flights, hotels, and anything else associated with trips abroad, is to do it as early as possible. Airlines in particular start to jack up prices considerably as seats fill up. So the longer you leave it, the more you'll pay. This is why booking your holiday well in advance using a credit card, and then clearing off the cost over a number of months, could well save you money in the long run – especially if you use a 0% purchase card.

There are many credit cards around that offer zero interest on all spending for a set number of months. These are the pieces of plastic you want to get hold of for booking holidays, as they'll allow you to spread the cost of your trip across several months at no extra cost. Providing you clear the full balance before the 0% period runs out, that is. The best way to ensure this is to arrange a direct debit to pay off a percentage of the debt each month and then lock your card away so you don't continue to spend on it.

Nationwide's Select account has the longest 0% purchase period at 18 months, with 17 months interest free for balance transfers. However the card is only available for FlexAccount holders who pay in £750 every month.

For cards available to everyone, the Halifax All in One MasterCard is one of the best deals around at the moment. It offers 15 months at 0% on purchases and balance transfers. Tesco's Clubcard Credit Card is also worth a look. Again, the deal offers 15 months at 0% on purchases, while balance transfers are interest free for nine months. The Tesco offering also gives holders bonus Clubcard points when they spend on the card.

Barclaycard and Virgin Money have competitive cards on offer as well. There's no interest for both purchases and balance transfers on the former for 14 months and later for 13 months.
Here's a full breakdown of all the best 0% purchase cards:

Source: credit card centre

When you get there...
In addition to getting hold of a 0% credit card to pay for your holiday, it may also be a good idea to snap up an overseas spending card to minimise the cost of purchases abroad. There are regular debit and credit cards which offer free spending overseas as well as currency cards that you top up prior to leaving.

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