Foreign Currency Transfers : Non-Bank Alternatives

The simplest way for expatriates to move money between accounts in different countries is by using their local banks. It is also usually the most expensive way of doing so - and when an expatriate may be involved in hundreds of transactions during a career overseas the cost difference can be enormormous.

Banks rely upon two basic drivers: inertia and safety. Clients find it easier to make transfers from a familiar environment, and may be less concerned about security if the transfer is made from "bank to bank". However, the internet now provides a degree of transparency that was not available 10 years ago and you owe it to yourself to understand the (added) costs that can be involved in using a bank versus other alternatives. There also occasions where, with (very) large transactions, that you may be in a position to negotiate an exchange rate with the bank or transfer company - this can save you considerable amount of money but requires the you understand the transfer mechanisms.

There are now a large number of foreign exchange transfer companies who compete against the banks in a range of countries - including OFX and HiFX in the UK. Our advice would be that you use companies such as these, and their online platforms, to compare the current exchange rates and transfer fees being quoted by your bank. Thereafter, after having satisfied yourself that they are appropriately licensed in your country, do so for comparatively small amounts in the first instance so you are familiar with the process.

In general terms, the greatest savings in percentage terms are often available on the small transfers, and the greatest savings in dollar/currency terms on large transfers - that's because the exchange rate quoted for smaller transfers are usually the most expensive, with "tourist rates" the worst. Broadly speaking, banks and other providers providers make their margin on the difference between the "interbank" rate for foreign-currency conversions and that which you are quoted on your transfer.

The table below includes an example of two transfers - one made out of a UK high street bank, and the other through a dedicated money transfer company in September 2015. In percentage terms, using the bank is considerably more expensive - the additional 2.7% margin being charged by the bank is very significant in foreign-exchange terms.

Example : Potential savings made on a transfer to Australia from the UK using Money Transfer Company vs. Bank

	Example Bank	Transfer Company
Pounds to Transfer	£ 3,000.00	£ 3,000.00
Exchange Rate	2.0777	2.1346
Client Receives AUD	$6,203.10	$6,403.80
Transfer Fee UK	£ 10.00	0
Receiving Fee Australia	$15.00	0
Potential Saving in AUD (disregarding fees saved)	-	$200.70

It is obviously particularly important to manage your transfers costs when making large transfers - perhaps from the sale of a house. And also do not take at face value the so-called "migration" forex rates that banks may offer if you are moving permanently abroad - it will still pay to make comparisons between the providers.

The Problem with Foreign Currency Cheques

Just a short comment regarding cheques - it remains common for many British companies to send cheques denominated in pounds sterling to expatriates. For example in cases where investments have been sold, or a pension balance transferred. Cheques can be an extraordinarily inconvenient means of transferring money - they get "lost" on a regular basis, take weeks to be cleared by local banks and attract exchange rates which are much less competitive than those you would receive on a telegraphic transfer.

Therefore, don't forget to inquire exactly how you will receive a payout if it is not made directly into a UK bank account, and try as hard as possible to avoid payment via a cheque. Telegraphic transfers are usually the much preferred alternative.

If you have no choice in the matter, and the cheque value is large, consider establishing a foreign currency (eg. GBP) account at your local bank and paying the cheque directly into that account. You may then have the opportunity to have the foreign exchange transaction carried out by someone other than your bank, and at the time of your choosing.