<i>Illustration: michaelmucci.com</i>

Illustration: michaelmucci.com

The strength of the Australian dollar over the past couple of years has encouraged more Australians to take holidays overseas. Banks and other financial institutions have responded by upgrading their travel-money services and pricing them more competitively.

The Australian Bureau of Statistics says there were 844,200 short-term departures by Australian residents in September. That's almost a million of us going overseas for business or a holiday in one month. The ABS says the number going overseas has been growing at about 5 per cent a year. We may be pulling back on spending, but not when it comes to overseas travel.

The most popular way to arrange travel money is to buy a prepaid foreign currency card. It has the advantage of allowing you to lock in an exchange rate before you go, which helps with budgeting.

And because it's not connected to your bank or credit-card account, it offers a measure of security - if it's stolen, your other accounts are not compromised. However, prepaid cards have their drawbacks, such as multiple layers of cost, and there are alternatives to consider.

In a report published in July, the finance industry research group Canstar rated MasterCard's Cash Passport the best product on the market. Cash Passport is issued by a number of financial institutions, Australia Post and the travel agencies Jetset and Flight Centre.

What Canstar likes about Cash Passport is its low costs and its ease of use. If the card is bought online, it costs $5, which covers the initial currency load.

Cards are issued in pairs. Users can go online to check balances, do top-ups and transfer funds between currencies if they have chosen a multi-currency card.

Cash Passport does not charge any ATM withdrawal or balance-inquiry fees (the ATM provider will usually charge a fee). Users can load up to seven currencies and Canstar says the exchange rates are competitive.

When the consumer group Choice rated prepaid travel cards in March, its pick was the Commonwealth Bank Travel Money Card. Choice likes the product because it has no initial load fee (although it does have a $15 purchase price) and no monthly inactivity fee.

The Commonwealth Bank card has the lowest currency-conversion rate (at 2 per cent) for currencies not already loaded on the card. What this means is that if, for example, you are in the US and decide to make a side trip to Canada, you can convert some of the US dollars on your card to Canadian dollars for a fee of 2 per cent. Other cards charge 3 per cent to 5 per cent for this, and Cash Passport charges 8.45 per cent.

The market for prepaid travel cards has become very competitive. Last year, American Express made its entry into the market with the launch of its Global Travel Card.

The card has some attractive features - no expiry date and no inactivity fee. And there is no commission if it is bought at an Australia Post branch.

This year, the online foreign exchange specialist OzForex launched a travel-money card called OzForex Prepaid Travel Card.

The company is working with Macquarie Bank, which is the issuing bank and program manager. Customers pay $15 to buy the card and do the initial load but don't have to pay a fee to add extra money to the card.

Canstar says there are several advantages to prepaid travel cards. The exchange rate is locked in so you can budget for the holiday without worrying that a swing in the exchange rate will reduce available funds.

Multi-currency cards let you transfer funds from one currency to another. Travel-money cards can be used at ATMs, at point-of-sale terminals and online. You can check balances, reload and transfer online. And because a travel card is not connected to a transaction or credit-card account, losses by theft or loss are limited.

The main disadvantage is the fees, which can include purchase and initial load charges, and ATM, reload, currency conversion, inactivity and closure fees.

In addition to the ATM fee charged by the card issuer, the ATM provider will also charge a fee. Using your own bank account may be cheaper, just as convenient and just as safe.

Retail banks have also noticed how much Australians like to travel and some of them are now offering transaction and credit-card accounts with attractive features for travellers.

Last year, Citibank removed fees for overseas ATM withdrawals, overseas point-of-sale transactions and overseas funds transfers (to other Citibank accounts) from its Citibank Plus Transaction Account.

Citibank's Select credit card offers a rewards program that awards four points for each dollar spent overseas - compared with 1.5 points for each dollar spent in Australia - free transfers to and from airports, fast-tracked check-in, and a complimentary hotel stay each year.

The head of transaction services at Citibank, Sarah Black, says: ''We have a transaction account that you can use anywhere. The proposition we would put to customers is that you don't need any other product for travel.''

HSBC Australia has a 24-hour foreign exchange trading service with live pricing. HSBC claims its 24-hour live pricing service is a first in the retail and SME markets. Available via mobile and online banking platforms, Get Rate offers access to 19 currencies.

In August, HSBC launched a Platinum Qantas Visa Card offering two points for each dollar spent overseas - compared with one point for local purchases - complimentary passes to the Qantas Club, travel insurance and purchase protection insurance.

Since 2007, HSBC has offered an account called Premier, which gives customers access to services in 35 countries. Frequent travellers can have accounts in many countries and can view them all with a single online log-in.