A complete, comprehensive, straightforward and very simple guide to getting it right when you move money between home and abroad – whether you make a one off lump sum transfer, or regular smaller payments
Report filed under: Offshore Bank Account and Savings Reviews » Offshore Bank Accounts & Banking Services
Wed, October 14, 2009 - 8:25 am EET
With the exchange rate between the British pound and all other major currencies such as the dollar and the euro at an all time weak level, never before have we Britons been so acutely aware of how important it is to get an international money transfer right! More than ever we’re aware of the charges banks make when they move our money about and we’re looking more closely than ever at the rate of exchange we’re being exposed to.
Off the back of this increased consumer awareness, foreign currency exchange brokers are attempting to market their services more aggressively than ever in a bid to win your business – but all most of them are succeeding in doing is confusing everyone with their jargon fuelled marketing and their boastful claims that they cannot back up with FSA regulation!
Therefore in a bid to finally cut through the rubbish and get to the heart of the matter – i.e., in a bid to produce an easy guide to internationally transferring money for expats and property buyers - we have asked the independent money transfer price comparison website SendMoneyHome.org to answer the important questions and provide ‘user friendly’ examples and answers.
This article therefore aims to break down some of the most over-used yet over-complicated terms and principles in the foreign exchange industry, giving confidence to anybody wishing to send funds overseas – whether you’re a pensioner who wants to get their pension out of the UK and out of pounds, or you’re buying a property abroad and need the funds to arrive with your lawyer at a fixed point in the future.
A foreign exchange (FX) specialist will often try to win your business by boasting about the benefits of having access to vastly superior rates of exchange compared to a high street bank for example, and then they’ll try to baffle you with talk about forms of risk management such as ‘forward contracts’. These are just tools designed to control risk within currency exchange transactions and ultimately to maximise the value of a currency transfer – but you would think it was magic the way some brokers talk! And to the average private client like you or me who is transferring money overseas, the jargon can be incredibly confusing…which is where this guide hopefully comes in useful: -
There are many reasons why one may utilise the services of an FX broker. It may be for emigration purposes, buying a home abroad, transferring your salary/pension, managing overseas mortgages, paying suppliers or a number of other purposes – therefore, anyone can use a foreign exchange broker.
The two main factors to focus on are fees for moving your money and the exchange rate you get for your cash.
Typically, FX specialists can often save a client between 1 and 5% on the exchange rate and a substantial amount in transfer costs too. Note: a high street bank’s fee is usually approximately between £15 and £35 depending on transfer size.
Fee
With banks, the client is far more susceptible and exposed to sending and receiving charges. For example, Barclays’s standard international payment service is £25 plus overseas delivery charges. For using the priority service there is a £40 fee plus overseas delivery charges. In comparison, many FX brokers will not charge any fees or commission – but do double check.
Exchange Rate
FX specialists are able to offer you superior exchange rates because they buy their currency in bulk and sell it on at a much smaller margin than a bank.
Whereas the bank will take an attractive profit margin of between 3-5%, an FX broker’s profit margin will generally stay below 1% for higher end (larger) transfers. Furthermore, brokers will have fewer overheads than a banking operation. Now, on the surface the savings in terms of the rate of between 1 and 5% may not appear considerable to you. However, if you are transferring £150,000 to buy a property abroad for example, it can make a significant difference to the amount of foreign currency that is ultimately received.
A spot contract allows the sender to purchase foreign currency immediately for delivery in up to 2 working days. This is a useful tool if you have a pressing need to transfer your money abroad. A broker will typically confirm the exchange to the client over the phone for ease and speed. For example, this type of contract can be used to make deposit payments on property overseas when you’re on holiday abroad and fall in love with a villa that you just have to have!
A forward contract is an agreement made with an FX provider to transfer a specific amount of foreign currency at a pre-determined rate on or before a certain date. It is useful to think of it as a ‘buy now, pay later’ approach to currency exchange. This type of transfer can be ideally geared to an expatriate who wants to protect themselves against adverse currency fluctuations.
There are two types of forward contract: Fixed Forward and Open Forward. FX brokers Currencies Direct delve beyond the jargon to distinguish between the two: -
Fixed Forward – “fixing the foreign exchange price now for use on a specific date in the future”
Open Forward – “fixing the foreign exchange price now for use between a range of dates in the future.”
Remember forward contracts are the ‘‘buy now pay later” approach to currency transfer!
Let us take the example of Mr Alex Parker who is looking to move with his family to Italy in six months time. Alex has found a suitable flat to purchase on the outskirts of Rome worth just 100,000 euro – what a bargain! Let’s say one euro is currently worth 60 pence, meaning that the flat in theory would cost £60,000. However, suppose the euro rose to be worth 67 pence in six months time, the flat price would rise to £67,000. By fixing the price with a foreign exchange dealer; – i.e., by exchanging €100,000 for £60,000 on a specified date, Alex has taken a low risk approach and is not ‘playing the market’ when it comes time for him to make his transfer abroad. In short, this type of forward contract will therefore protect him against any unfavourable currency swings between the euro and the pound.
Another example is the case of Mrs. Jones who has retired and is living in Cyprus. When living overseas it can often be difficult to liaise with banks in the UK, and written authority is usually required before you can move money anywhere. However, Mrs. Jones is regularly transferring her pension into euros while living abroad in Paphos – and she’s doing so with minimal fuss. You see, Mrs. Jones fixed her exchange rate with a leading FX broker for up to 2 years using an Open Forward, and she is guaranteed a fixed amount of income per month in euros at the pre-determined rate as a result.
This facility has let Mrs. Jones budget more prudently, and she does not have to make constant phone calls back to the UK and suffer a headache from her high street bank manager every time she wants to get her hands on her money!
Clients often appreciate the personalised and hand-held style of approach adopted by currency specialists who really do guide you through every aspect of the process. Having a dedicated account manager look after your important currency purchases is often preferred to the depersonalised approach of wire transfers used by high street banks. Often, their in-depth and specialised currency knowledge can protect and alert clients against adverse market movements. However, on the flip side of the coin, some brokers may take a pushy ‘sales-like’ approach and one should watch out for this.
SendMoneyHome and Shelter Offshore are always eager to stress that checking the regulatory credentials of a foreign exchange specialist is imperative. Security is the leading priority when transferring funds and using a reputable dealer will ensure that the beneficiary ultimately receives their money. As a basic bottom-line, ensure that the FX business is regulated by HM Revenue and Customs as a Money Services Business.
www.sendmoneyhome.org and it’s sister site www.sendfundsoverseas.com independently compare the best value services offered by Money Transfer Operators and FX brokers - every provider listed on either site has been vetted by the company and is fully regulated. Shelter Offshore is not affiliated with any company mentioned in this guide.
