Stop Banks from Cashing in on Your Overseas Transfers - Part Three

By Charles Purdy, Smart Currency Exchange

Many British ex-pats overseas send or receive money to or from the UK and in the process they unintentionally lose money. In some cases, losses can be up to tens of thousands! This is part 3 of a special 4-part series that has been written to outline how the bank-to-bank international payment process works, the specific areas where expats are losing money and definite actions that can be taken to mitigate losses. At the end of the article, there are details on how you can download the full series.

In the previous two parts, I explained that expats can save money by using an international payment provider rather than using a high street bank. Savings can be made by buying currency at rates that are better than offered by the bank. Compared with the mark-up supplied by the banks, there’s a possibility to receive up to a 4% saving. On a £100,000 transfer that’s a reduction of £4,000 by using a currency specialist rather than a bank. And on a regular payment of £1,000 a month, that’s a saving of £40 per month or £480 a year. The other way to save is by enlisting the help of a specialist to reduce and/or eliminate fees. When doing this, it’s possible to save up to £50 (by avoiding fees) for every transfer!

Aside from saving money on better exchange rates and reduced or eliminated fees, expats have a wide range of options when it comes to working with an International Payment Specialist. Rather than being forced to take the exchange rate on the day that the money needs to be transferred, there are alternatives.

The most common option that assists expats greatly is to buy a Forward Contract. A ‘Forward’ allows you to reserve a currency exchange rate today, yet not have to pay for it in full or send the bulk of the money until an agreed date in the future.

Take John and Jane Wilson as an example. They moved overseas during the middle of 2009. The couple were worried that sterling may again lose value against the euro and so they contacted us and explained that their joint pensions came to £2,120. They wanted to know how they could make sure that the amount they receive each month didn’t decrease due to changing exchange rates.

After talking with us, the Wilson’s decided to buy a ‘Forward Contract,’ for a full year. This means that they fixed a set exchange rate for the course of the year. They set up an automated standing order system that allowed their pension to be sent to our bank in the UK on a monthly basis. Once the money arrived at our bank, it would be exchanged from sterling to euros at a rate of 1.162 every month for the full year. In August, they received € 2,463.44 in their overseas bank account and continued to receive the same amount every month for twelve months. To set up this facility, the Wilson’s simply had to open an account with us and pay a small administration fee for the regular payment system.

If the Wilson’s decided against fixing a currency exchange rate, their monthly amount would have decreased along with the weakening sterling rate, and by October 2009 they would have received monthly payments at an amount 11% lower - from €2,463.44 down to €2,185.10!

Banks often fail to offer, or even mention the alternative of fixing a currency exchange rate for use in the future, yet it’s such a valuable tool. The option of buying a ‘Forward Contract’ gives you peace of mind that your pension payments won’t decrease in value.

In Part 4 of this 4-part series, I will explain the procedure for moving large amounts of funds from overseas back to the UK.

For more information on Smart Currency Exchange, please call our freephone: 0808 163 0102 (+44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyExchange.com