What’s the best way to spend money in Australia?

For spending in countries where I don’t have a local bank account, I use a combination of Halifax Clarity MasterCard and Santander Zero MasterCard, both credit cards. I gave up using Visa cards for foreign transactions several years ago because of Visa’s 1% charge for non-European transactions. Both cards give MasterCard’s rate with no fees added. MasterCard’s rate is close to the interbank rate, and is often better than the interbank rate if MasterCard’s net flows on a particular day are in the opposite direction of your own expenditure. Neither card charges for cash withdrawals, but they do charge interest from the date of the cash withdrawal so you need to pay off any cash withdrawals, e.g. via a mobile banking app, on the day of the withdrawal to avoid a few pence in interest charges.

Do not change cash between currencies; instead use cards for purchases and cash withdrawals. An electronic form of payment is inherently cheaper than changing banknotes because extraterritorial cash is expensive to handle. When you use a card, Visa or MasterCard obtains a wholesale interbank rate and no money crosses borders. GBP is paid between UK bank accounts and the foreign currency is paid between bank accounts within the foreign country. When you change cash, either in the UK or abroad, one currency will always be extraterritorial, i.e. outside its home country. If you change cash in the UK, the foreign cash will be extraterritorial, or if you change your cash abroad, the GBP will be extraterritorial. Physical cash is inherently expensive to handle, extraterritorial cash even more so.

In the wholesale banknote trading markets, cash is consequently traded at a premium or discount compared to electronic funds, and the premium or discount depends on several factors. For example the physical state of the banknotes is relevant; in Russia and other parts of Eastern Europe a pristine state is expected. The denomination is also relevant because smaller denominations are more expensive to transport. Another factor affecting some currencies is the issuer of a banknote; for example there are multiple issuers of GBP and HKD banknotes, and Scottish banknotes have a lower wholesale value than Bank of England banknotes. Added to these wholesale costs are the retail costs incurred by bureaux de change, such as employing staff, operating premises in high footfall locations and the potential movement of the wholesale interbank rate while a bureau de change holds the cash. Forget taking cash between countries unless you want to pay unnecessarily for these many costs through a worse exchange rate.

Although Visa and MasterCard obtain a wholesale interbank rate, many UK card issuers subsequently add a percentage fee (often up to 3%) for non-GBP transactions. Given that the card issuer does not partake in the foreign exchange element of the transaction, any such fee is not for foreign exchange but a fee for nothing, feasible because many consumers are less sensitive to or observant of fees when the transaction currency and billing currency are different. You can avoid such fees by using one of the top cards for overseas spending, e.g. Halifax Clarity.

I really can’t understand why the question is still asked, and that people still faff around with travellers’ cheques or buy huge amounts of currency before they go. I’ve used cards for cash and purchases for decades now. OK so you might save a bit on transaction costs or you might not but is it worth the stress of working it out? Or indeed the stress of losing all that cash? Or finding yourself somewhere where no-one will honour a sterling travellers cheque?

I would warn people to look out for Dynamic Currency Conversion – DCC. You are in Australia and buy something in £AUS. You pay by credit card and the “helpful” merchant converts this into £GBP.
Almost inevitably the exchange offered will be a poor one and you will be worse off compared to paying in $AUS, especially if your credit card does not charge a FX loading fee.

VISA and Mastercard rules says that the customer MUST be offered the choice, but my recent experiences suggests that an increasing number of shops are not doing this.

Just tried to transfer money via Transferwise and find that any message identifying your payment, e.g name/account #, does not get propagated through to the recipients bank statement, but that instead they receive an email saying that you have sent the money. Not all recipients (e.g. large organisations receiving e.g. membership fees at the same time of the year, can cope with this conveniently