Whether you own a property overseas, work abroad, or make regular international money transfers for a pension or mortgage abroad, this simple step by step guide gives you all the information you need to understand how to get the most out of your money transfers, because if you don’t do your homework, you could end up losing large amounts of money in hidden fees and poor exchange rates.
Beware hidden charges
Currency fluctuation might sound like something that is only a
problem for a handful of foreign exchange traders, but in today’s
global economy the swinging value of the pound against the dollar,
euro and other denominations is an issue for everyone and how you
deal with transferring your money can make the difference between
being euro-wise and dollar-foolish.
For most people regardless of whether they're based in the UK or
overseas, their high street bank is the first port of call when
making international money transfers assuming that it’s their best
option. However, regardless of where you live in the world and what
types of bank accounts you have set up, most banks offer poor
exchange rates and levy a variety of hidden charges.
At the end of the day they know that very few of their customers
bother to check the rates and how much they’re paying. As a result
they take advantage of a captive market and continue to cash in on
our lethargy.
But it doesn’t have to be this way and it pays to shop around
for the best.
When making international payments, the costs fall into two
simple areas: fees and the exchange rate. When shopping around and
comparing one company with another, regardless of whether it’s your
high street bank or a currency specialist, it’s important to
pinpoint two things.
- Fees - The key charges to look out for include transfer
charges and overseas bank receiving fees.
- Exchange rates - many banks claim to be ‘commission free’
then load the exchange rate. It’s also difficult to get hold of
the exact rate and compare it, as some providers simply don’t
provide the information.
Getting the most for your money actually boils down to a very
simple question: “How many euros/dollars/Swiss francs/pounds will I
receive for my money, after all charges?”
The exchange rate is the rate at which banks and brokers buy and
sell money to each other. Private individuals and
small-to-medium-sized businesses cannot access these rates.
Remember exchange rates often change by the minute, so to compare
providers properly you need to do it one after the other.
How are exchange rates calculated?
The rate you are offered will be dependent upon a number of
factors including
- The amount of money you are transferring
- The time-frames you are working to (i.e. whether you are
looking to lock into an exchange rate for up to 12 months)
- The currencies you are buying and selling and the volatility
of those currencies
-
The
exchange rate levels at the time of purchase
How to find the best deal
For larger bank-to-bank international money transfers, i.e. £250
and over, it pays to compare your high street bank’s exchange rates
with those offered by some of the many currency specialists that
exist.
Typical reasons for making international transfers include
-
Smaller
one-off transfers, topping up an overseas bank account,
transfers to family members back home, etc
-
Regular
transfers, pension transfers, overseas mortgage payments,
salary transfers, etc
-
Large
purchases abroad such as stocks and shares, property, boats,
cars, etc
How much will I save if I use a currency broker rather
than my bank?
On average the amount saved by using a currency specialist
rather than your bank could be between two to four per cent. So on
€100,000, this could equate to a saving of €4,000 on the exchange
rate alone.
It’s also worth remembering that due to their branch networks,
the high street banks have to set their exchange rates once or
twice a day. To make sure they remain profitable they have to
increase the spreads to allow for intraday exchange rate
volatility. Brokers give clients access to live rates saving you
money.
How quick is it to use a currency specialist?
By using a currency company you’ll also avoid international
banking fees, which vary from bank to bank, and your money will get
there a lot faster.
The transfers will in most cases be free and transferred either
same day within one to two working days depending on where you’re
sending the money.
Timing can mean everything
Depending on the amount you’re sending, the timing of a
transaction can also be important particularly if you’re sending
larger amounts.
In many cases, people don’t pay much attention to what’s
happening to the exchange rate and simply leave their decision to
make the international money transfer to the last minute hoping for
a good rate, assuming, that without all the funds available, there
isn’t much they can do.
Regardless of why you’re transferring your money, the larger
the amount you’re looking to move overseas, the more important it
is to maximise the timing of your transaction and minimise the risk
that the exchange rate could get worse and make your money worth
less. Remember, as soon as you decide to move overseas or buy and
sell an asset abroad such as a property, you are exposed to adverse
moves in the currency market.
How to choose a currency specialist
It’s important that you undertake the following checks when
choosing a currency specialist:
- How long have they been in business?
- Are they authorised by the Financial Services Authority (FSA)
under the Payment Services Regulations 2009? Companies that are
authorised by the FSA have had to meet strict capital adequacy
and business practice rules, comply with Payment Services
Regulations and the FSA’s Conduct of Business requirements.
- Are they registered with HM Customs as an overseas money
service business?
- Do they hold your money in segregated client trust accounts?
Your funds are held separately from company funds protecting it
from creditors.
- Do they have audited accounts on their website and how strong
is the company’s balance sheet?
- Do they have professional indemnity insurance protecting
customers from staff fraud, etc?
- How many staff do they have and what turnover? Obviously a
large established company is more reliable than two guys in a
back room, though it’s no guarantee.
- Do they have direct access to SWIFT? SWIFT is the world’s
largest payments and settlements network for domestic and
international trades. Direct access ensures you, the client,
benefit from faster payments and enhanced security.
