Money Transfer Guide
Money Transfer Guide
There are many different reasons why people need to send money abroad. You may be purchasing a Spanish holiday home, paying a foreign mortgage, sending money to a relative or bailing out a travelling dependant. Depending on your reason and the amount you are sending abroad there are many different options available to help you get the cash from A to B. This guide will enable you to find out which method is best for you and how to get the best possible deal.
Costs
There are two main factors which will affect the overall cost effectiveness of your money transfer:
Fees – These can be displayed in a number of ways, as initial charges or commission and can be applied to funds either at the sending or receiving end.
Exchange rates – Exchange rates constantly fluctuate 24hrs a day Typically, those firms specialising in sending smaller amounts may offer a blanket rate for that day. Larger transactions are often quoted as a live figure and are only valid for a few seconds. When comparing the rates offered by competitors make sure that the rates you are looking at are for the closest possible time period. Comparing at different times will make your findings inaccurate and won’t allow you to see who is offering you the best deal. The aim is to try and compare apples with apples.
There are so many factors that can cause exchange rates to fluctuate making it almost impossible to know when is the best time to buy your currency. The best advice is to simply buy at a rate that you feel happy with, if time is on your side and rates do drop you can wait to see if the rate will improve before making your purchase however this is a gamble as rates could drop even further. Monitor the rates well in advance of your trip so you can understand if that has been any recent large movements in the rate.
Fee’s V’s Rates
Don’t be fooled into thinking that Companies offering to send your money for free will provide you with the best deal. As the saying goes .. there is no such thing as a free lunch! Free deals are often counteracted by a very poor exchange rate and the larger the transaction the more out of pocket you will become.
Let’s look at this example to see how many US Dollars you would get if you exchanged £500.00 with two different companies.
Transaction Fee Exchange Rate Amount Received
Company A £10 Fee 1.9010 $931.49
Company B No Fee 1.8520 $926.00
And on a much larger transaction if you were looking to exchange £5000.00 into US dollars
Transaction Fee Exchange Rate Amount Received
Company A £10 Flat Fee 1.9010 $9,485.99
Company B No Fee 1.8520 $9,260.00
As you can see the exchange rate especially on the larger transaction really makes a difference on the amount of dollars you get for your money and even with a fee being charged by company A you are still getting more for your money.
Tip .. There are only really two key things to remember .. how much did I start with and how much currency will I end up with. It really is that simple.
Next read through our guide below outlining the different types of firms that can send money abroad to find out which method is suitable for you.
Small transactions (Under £1000.00)
e.g. sending money to an offshore relative or making a small one-off payment overseas.
Companies such as Western Union and Moneygram offer a service which is available online; you can also arrange these services at the post office or in some travel agents. They offer a fast and effective method of sending money abroad. Both companies send the funds to an agent or branch on the destination country where the recipient will need to go and collect the funds. Before you send money using either of these companies check they have an agent or branch close to your recipient. There are other online firms which provide a transfer service from the UK to specific countries. When shopping around for the best deal look at the rate offered whether they are charging any sending or receiving fee and the delivery time. Check out our comparative table to see who is offering the best deal at the moment.
Paypal offer a simple way of paying for goods abroad. In order to use PayPal you and the recipient will need a valid email address and both have PayPal accounts. PayPal operates in over 190 countries and in 18 currencies. Once you have set it up you can simply pay money into your PayPal account via credit/debit card or bank account. The recipient can then choose whether to spend the money from their PayPal account or to transfer the funds into their own bank account which can take up to 9 days in some cases. Paypal is convenient and secure but in most of our tests did not offer a particularly competitive exchange rate.
Transactions above £1,000
e.g. buying overseas property, buying a large item offshore, paying off an overseas mortgage
For any sum above £1,000 a specialist currency broker will offer you the best rates. Some will now even transfer amounts as small as £300. These companies buy and sell large amounts of currency allowing them to offer extremely competitive rates. Many don’t charge fees for sending the money and simply make a profit from the small margin they add to the exchange rate offered.
A brokerage can offer specialist advice on what type of transaction is best for you and explain how the market has currently been performing. They can fix your exchange rate for up to two years which is a great option to have if you know you will be making regular payments for something such as a mortgage.
Check out our comparison tables to compare the rates and fees offered by the UK’s leading currency brokers.
Contract Types
For transactions above £1,000.00 there are two types of currency contracts in which you can make between you are the supplier which will confirm the rate at which your pounds will be converted into your chosen currency.
Spot Rate Contract – This is the name of a typical ‘at the time’ conversion. You agree an exchange rate and conclude the payment within just a few days. This is the most common type of conversion you will encounter.
Forward Rate – This type of contract shows what exchange rate you will receive on a set date in the future which can be anything up to two years in advance. You will generally need to give a 10% deposit to the broker and pay the remaining transaction amount closer to the settlement date. This is a great contract if you wish to have certainty over the GBP value of a future payment.