As you’ll likely know, transferring money overseas isn’t the same as moving money within a country. Sending money abroad is complicated by the fact that you often need to convert currencies to do so. The world is home to 180 different currencies, as recognised by the UN.
Each currency has its own value, so when you convert one currency into another, there is an exchange rate. The value of currencies, and thus exchange rates, are continually shifting. They’re affected by global issues, such as political events, interest rates and data releases.
There are a number of ways to send money abroad. But which way is the cheapest? That largely depends on the reason why you are converting currencies in the first place.
We’ll go into them here.
Why exchange currencies
There are a number of reasons why someone would send money abroad.
One of the most common is for international travel. People move small amounts of money across borders to pay for holidays. Although exchange rates do play a part here, there not usually as pertinent as when you send large amounts of money abroad.
Another reason why you may send money overseas is because you’re relocating internationally. Expats often need to pay for a life in a new with money that sits in their old county.
As good as the expat life is, it does come with its expenses. Buying property, settling mortgage payments, paying rent, renovation… the list goes on.
These are the large transactions, but expats still need money for day-to-day living. If your money or income is in your home country, then you’ll regularly have to transfer the money to the currency of the country you now reside in.
There may come a time when you give up the expat life and come home. At that point, you’ll want to bring the money you built up when you were away back to your home country. Again, you’ll need to convert currencies.
What are the costs of sending money abroad?
When you go on holiday, exchanging currency is a slight inconvenience. When you’ve moved abroad, it becomes a big part of your life.
A poor rate can end up costing you thousands. The cost to exchange currencies can change from one day to the next. News stories in places thousands of miles away from you can impact the currency markets. And, as a result, increase how much it costs you to transfer money.
It’s imperative that you find a good rate. When you’re moving thousands of pounds, euros or dollars from A to B, the difference of a few percentiles in your exchange rate can equal the costs of a month’s mortgage payment, for example.
You’ll find that different banks, brokers and apps offer differing exchange rates. Why is this? It’s because brokers put something called a ‘spread’ onto their rates.
The spread is essentially the difference between the price at which the brokers buy the currency and the price at which they sell it to you.
If a broker is offering what seems like a poorer exchange rate, it’s likely because they’re putting on a larger spread.
Most banks and some foreign exchange brokers also charge you a fee to exchange currencies. This is on top of the spread.
Many senders charge you a myriad of smaller fees that can add up. It’s complicated and becomes hard to understand exactly how much you’re being charged.
Where can I exchange currencies?
The most traditional way to convert currencies is through a high-street bank. The benefit of this is that it’s reasonably easy. So, it can be a good option for you if you’re going on holiday and want to keep things simple.
When you’re moving abroad, however, you pay for this level of ease. Banks very rarely offer the best exchange rates. Plus, you’ll also find a number of hidden fees attached.
When you’re transferring large amounts over — for, say, a property purchase — the added fees can get so large they can equate to other costs associated with moving abroad — like the lawyer fees that come with buying a foreign home.
Why do banks offer such a poor deal when it comes to foreign exchange? It’s essentially because currency exchange makes up such a small percentage of a bank’s revenue. They don’t offer competitive rates because they don’t need to.
Online currency transfer services
Following the rise of financial technology, many entirely online currency exchange services have popped up over the last decade or so.
These companies usually offer more favourable exchange rates than the banks. Plus, they’re relatively easy to use. They’re a good option if you want to send money quickly, perhaps to family or friends in another country.
Yet, if you’re moving abroad, need to make a large transaction, or plan on converting currency regularly, these services have their downsides.
For one, they are exclusively online. This means there’s no personal service and you don’t get to talk to an expert about your currency exchange requirements.
Foreign exchange is tricky. With rates continually shifting, the amount you receive from a transaction can change from one day to the next. That’s why it’s best to create a strategy to ensure that you minimise risks and capitalise on potential opportunities. But you usually need expert guidance to help with this.
Another flaw is that these platforms only allow you to do what’s called a ‘spot transaction’. As it says on the tin, this involves you carrying out a transaction on the spot. This means you buy currency and have it delivered on a specified date. Whatever the exchange rates are that day — whether favourable or not — they’re what you trade at.
Granted, it’s a quick and simple way to convert currencies. But if you’re making larger transactions, or want to develop a successful foreign exchange strategy, other solutions could be more beneficial to your situation.
We’ll go into them here.
Banks usually offer poor exchange rates. Online currency transfer platforms offer no personal service and limited solutions. Privalgo falls into neither camp.
Privalgo provides expats with leading exchange rates, should they want to make transactions on the spot. Yet, that’s not the only service on offer.
We offer a number of alternative solutions that can help different people with different requirements. Particularly popular is our Flexible Forward. It allows you to ‘lock in’ a rate for up to two years. We go into the Flexible Forward and other tailored solutions here.
What’s more, we will be with you every step of the way. You will be assigned your own Relationship Manager, who comes to know your currency exchange requirements. From there, they will be able to offer solutions, specifically tailored to you.
They are the upsides of using Privalgo, but we’re not for everybody. We deal mostly with individuals who move large amounts of capital from one country to the next. For example, the minimum amount you can transfer with us is £5,000. If you’re off on a weekend away, then a bank or an online platform is probably for you.