If you’re looking to transfer large amounts of money abroad, perhaps it’s because you’re buying or selling a property overseas, or because you may be going to live abroad for some time, it’s well worth shopping around to get the best exchange rate.
Getting the best exchange rate
High street banks can charge up to four per cent to change your money. As well as a commission and a transfer fee. It can add up to thousands of pounds (as much as £6,000 or more on a transfer of £100,000).
Foreign currency brokers
Most of us think of foreign currency brokers as high street bureaux de change. But there are a number of specialist brokers that deal with large-scale transactions. They’ll generally offer you a much better rate than the one you’d get from your bank. And they can help you minimise the risk of being caught out by currency fluctuations.
These companies may not be familiar names so it’s worth carrying out some checks.
- Ask if they have professional indemnity insurance.
- Ask if they’re a member of a trade body.
- Ask whether they deal with any large corporate clients (for added peace of mind).
- Find out if they have access to SWIFT, which is the world’s largest payments network. Firms that transact more than three million euros a month had to be authorised by the Financial Services Authority by May 2011 at the latest (by November 2009 if they were trading before 2007). Firms that transact less than three million euros only have to be registered.
SAVVY TIP: You can check their status on the FCA register. The FCA – Financial Conduct Authority – replaced the FSA in April 2013 for many financial companies. Although banks and some other financial companies are regulated by the PRA.
Four foreign currency brokers
- XE (used to be HiFX): This company arranges money transfers for personal and business customers. It doesn’t charge any fees or commission. But – like all brokers – makes money through the difference between the exchange rate at which it buys and sells.
- Western Union: Western Union is the largest money transfer network in the world. Fees depend on the amount you want to transfer and the countries it is being transferred to and from. They also depend on the pay-in and pay-out methods. Fees at a branch are generally higher than sending online.
- Caxton FX: Another foreign exchange broker that doesn’t charge commission or transfer fees.
- Ethical Currency: A foreign currency broker that makes a donation to charity on every transaction it carries out.
You can find a list of other money transfer services in my article Transfer money abroad – international money transfer services.
SAVVY TIP: It’s definitely worth shopping around to get a good rate on your transfer. And to also save money on commission. But it’s important to check the level of service they’re offering. Do you feel comfortable talking to the company on the phone? Do they answer your questions in a way that makes sense? Do they offer ways of limiting your risk?
Limiting your risk
If you want to reduce your risk, the best option is to change your foreign currency for Sterling straight away. This means you know exactly how much you’ll receive. Although it doesn’t necessarily guarantee the best rate as your chosen currency may move in your favour in the coming weeks and months. The alternative approach is to:
- Speak to a currency specialist. Whilst they can’t predict what will happen to foreign currency rates, they can give you relevant information about recent movements and what upcoming events/economic data may have a significant impact on the currencies you’re buying and selling in.
SAVVY TIP: Understand your risks and rewards. If you are going to gamble, what is the potential gain versus the potential loss?
- Hedge your bets. It’s a good idea to to split your total amount into two or three smaller amounts to limit potential losses.
- Use tools to reduce your exposure. ‘Limit’ and ‘stop loss’ market orders are automatic instructions to buy or sell currency at a pre-determined level. The idea of a limit order is to try and get a better rate than the current exchange rate. A stop loss order is the minimum rate that you want to achieve for the exchange (this must be below the current price).
SAVVY TIP: If you’re dealing with a currency specialist it may also be possible to ask them to get in touch when currencies reach a certain level if you have target rates in mind.
Transferring money to the UK – selling
If you’re looking to transfer money to the UK as a one-off, maybe because you’ve sold a property abroad, there are several steps you should take to minimise the costs. HiFX (now XE) recommends that you:
- Get currency accounts organised. Open an account with a currency specialist in the UK early on in the conveyancing period.
- Give your overseas lawyer clear instructions. Make sure that you instruct your overseas lawyer (in writing) before the sale is complete to send the funds directly to your currency company who will then transfer it to you in Sterling.
SAVVY TIP: If you don’t do this, your overseas lawyer will usually send the proceeds direct to your international bank account or even create a European bank draft which may take weeks to clear. If you instruct your lawyer to send the money direct to your UK bank account, you will get an exchange rate usually somewhere between commercial and tourist rate and often won’t know what this is until after it’s been converted.
Transferring money abroad – buying
If you’re buying a property abroad because you’re buying an overseas property, you should make sure that you know how much your final cost will be. There’s more about the costs of buying abroad in an article called finding your dream overseas property elsewhere in this section.
- Fluctuating exchange rates can make a huge difference to the final price you pay for your overseas property.
- Currency specialists will allow you to lock into favourable exchange rates for up to a year ahead (in some cases, up to two years) which means you don’t have to worry about the risk of the exchange rate moving against you.
SAVVY TIP: The Eurozone has gone through a particularly volatile period in the last few months and even relatively small movements can have a big impact on the final amount you receive. According to HiFX, the Euro once lost over a cent in half an hour following comments by the French prime minister.
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