Every month I send 60 per cent of my salary home to the US. Until now, I have used my bank to make the monthly transaction but I have heard that some online foreign exchange houses offer expats a better rate and will not charge any fees. Can you tell me how this works? NB, Abu Dhabi
The expert advice James Thomas, regional director at Acuma Independent Financial
Until recently your own bank was the easiest and most convenient way to send money home. However, in return for that convenience and perceived security, there was a price to pay. That price was a poor exchange rate. Why is this? Well, simply put it is the fees charged to transact the exchange. These fees could be either as a percentage of the amount being transferred or by way of a fixed fee.
Then there is usually a difference or a spread in the price between what the currency is bought at, and what it is sold at, which are referred as the “bid” and “ask” price. The “bid” is the price at which you can sell the base currency. The “ask” is the price at which you can buy the base currency. When buying a currency the price is normally higher than the selling one, and this difference can be up to 5 per cent.
By using a currency exchange, their model is relatively simple – it is the old supermarket model of pile it high and sell it cheap. Focusing purely on foreign exchange and often only being online, they can cut a lot of costs out of their business and so reduce the fees and the spread in the currency. This is then passed on to customers in the form of more attractive exchange rates.
Things to look out for include making sure the companies are licensed in both the countries that you are sending the money from and to and whether they use an escrow account to hold clients’ money?
There may be a minimum transaction amount before they are willing to accept your request. Other things to consider are whether your bank will charge you to send the funds to another bank – this may negate the savings that you have made on the currency conversion. How long does the process take? Some of the exchanges can take a few days for the monies to reach their final destination.
However, as with most financial transactions, if you do your research and investigate your options, there are significant and worthwhile savings to be made.
The reader’s advice: John Harris, Dubai
I send a monthly amount back home to the UK using this type of service. The savings you make from the more favourable exchange rates and the fact it is a free transfer (the online exchange usually pays all of the transfer fees) makes it worthwhile, particularly for someone like you who is sending a large portion of your salary on a regular basis.
But it’s not always straightforward. When I send the money home with one service, I have to transfer to a dirham account based in the UK and my bank (unlike many here) does not have a facility for me to do this online. So I have to physically go into the bank each month to make the transaction to ensure the bank makes a special allowance for me. The other is the time it takes. After my salary drops into my bank account here, I visit the branch to make the transfer, the money is then transferred to the online exchange’s account in the UK and then finally to me. The whole process can take up to a week when you factor in the different weekends for here and the UK. However, while it may not be a fast way of transferring funds, it is cost-effective. The services I recommend include Global Currency Exchange Network, First Rate FX and Moneycorp.
The next Money Clinic:
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