Whether it's dollars or euros, pre-paid can be a fantastic form of plastic

People are increasingly relying on credit and debit cards for spending abroad: last year there were 300 million transactions on cards overseas, with £18.1bn spent on purchases and £7.1bn taken out as cash.

However, there is a third, and often cheaper, type of plastic card available which is especially designed for use overseas - the pre-paid currency card. Travel money cards are a relatively new phenomenon in the UK and so far only about 2 per cent of the population have used them, according to Mintel, the market research analysts. They operate like a debit card but you don't need a bank account to use one. The currency is pre-loaded on to the card before you leave Britain and it can then be used to withdraw cash or make payments overseas.

The cards, which are denominated in euros, dollars and sterling, are available from the Post Office, Barclays and Lloyds TSB. Cheaper deals are also available from specialist currency brokers such as Fair FX or Caxton FX.

The advantages of pre-loading a card with currency include being able to fix your exchange rate in advance. It also means you will not have to pay a foreign usage loading when you buy goods or draw cash in the same currency as the card, which you would normally have to do with an ordinary debit or credit card. This typically adds at least 2.75 per cent to your costs, and with a debit card you would also have to pay a £1.50 handling fee - although the Nationwide and Abbey Zero cards have no foreign exchange loadings.

If you withdraw cash on a credit card, you will have to pay a £3 handling fee, plus interest. The cost of overseas cash withdrawals from a pre-paid currency card varies but is generally cheaper; Barclays Travel Money card is possibly the most expensive with a 2 per cent charge, subject to a minimum of £1.50, while the cheapest for ATM withdrawals is Fair FX, which charges £1 or its foreign currency equivalent.