Forex Transaction and Transfer Costs
There are a number of fees and charges involved in a foreign currency transfer, applying at both ends of the transaction, and you need to understand them if you are to manage the process successfully and at least cost to yourself.
These vary from provider to provider (usually banks) and, purely as an indication, outgoing internet transfers will often attract fees of £10 - £20 in the UK, $15-$75 in Canada and around $30 in Australia. Transfers made over the bank counter, rather than through the internet, often cost twice as much. Given the nature of the transaction we don't think there is any logical basis for charges linked to the amount being transferred, but it happens (very) frequently.
This is ordinarily where the provider makes most of their money, and it is the least transparent part of the process. Expatriates will often calculate the GBP value of any transfer made back to the UK by dividing or multiplying the amount by the headline foreign currency rates appearing on the television or newspapers. The rate being quoted in this case is usually what is referred to as the "interbank rate" - the rate at which international banks will exchange deposits. Effectively, this is a "wholesale" rate for transfers and how close you get to it will be a function of the size of the transfer, and probably more importantly, the number and value of transfers you make. Individuals, unlike companies and other financial institutions, have very little buying power and this will be reflected in the margin you pay "above interbank".
Receiving Bank Fees
This often comes as an unwelcome surprise, even though it is a relatively minor cost in the scheme of things - often in the order of £7 - £10 pounds in the UK, $10-$15 in Canada and $15 in Australia. The particular problem that it causes is where you wish to transfer a precise amount into someone's bank account, and you suddenly find yourself £10 short of the amount required. You need to research the individual receiving banks receiving fee; levels vary considerably across countries.
The margin you pay on an individual transaction however can vary considerably, and it still pays to shop around amongst the various providers to see who offers the best rates available. Banks often perform poorly in any comparison because they effectively rely upon client inertia to drive business - and it is not uncommon for margins, even on moderate or large transfers, to exceed 3% above interbank, even on quite large transfers.
When it comes to shopping around prior to making a transfer you will need to talk in terms of agreeing a "margin over interbank" - since, unless you put in place a forward contract, you cannot guarantee the exchange rate but can only try and manage the controllable factors - in this case, the amount charged by the provider to convert the currency. Most staff at the local branch of the bank will have no idea what you are talking about - you will need to talk to the bank's Treasury function, if that is possible. Another reason to conduct your transfer online.
It may seem a lot of trouble, but you can often negotiate considerable discounts to the bank's "rack rate" and these can be worth thousands of pounds on a large transfer. To get some idea of the savings available, look at the rates offered on sites such as UKforex and HiFx - if the banks are unwilling to be flexible very seriously consider using a specialist provider. Just ensure they are properly lincensed.
While this process can initially seem to be complex and difficult to understand, it soon becomes almost second nature - and there are very few societies in the world more knowledgeable about exchange rates than the expatriate community. A little time and effort in this area can generate very good returns throughout the period of an overseas assignment.