COMMENT
Send Money Abroad Cheaply

By Alison Hunt (TMFAlly)
February 16, 2005

Sending money abroad is like making a phone call and reversing the charges – something you were always warned should only be done in an emergency as it costs a fortune.

It's certainly something that many of us can't imagine ever needing to do – after all if you're stuck abroad you can always rely on your credit card for a short term loan.

But with so many of us working and retiring abroad each year, it may not be such an unlikely prospect.

Many retired people overseas have to transfer their pensions over each month and numerous foreign citizens in the UK send money home regularly.

In addition, around 150,000 of us buy properties abroad each year, with more purchasing cars and yachts. This all requires someone to handle the transfer, and if you don't get a good deal it can be costing you hundreds in poor exchange rates and commission charges.

So who should you use? Your first port of call would be very likely to be your High Street bank. After all, you know them; you've been with them for years so you're bound to get a good deal, right?

Not necessarily.

Banks are very much the convenient option, but are not necessarily the cheapest. For a start, most charge between £20 and £40 for an overseas transfer and some may also charge commission.

But more importantly they tend to offer what's known as 'tourist' exchange rates – which are usually pretty poor when compared to the published "inter-bank" rate, printed in newspapers each day or on teletext .

For larger sums therefore, you would be better off using a specialist 'currency house'. These companies specialise in moving money, and with fewer staff, tend to have much smaller overheads than high street banks allowing them to pass some of their savings onto you.

For example, I contacted two currency houses and a bank to find out how much it would cost me to send €5000 to a bank in Paris:

	Exchange Rate	Transfer Fee	Total Cost
CurrencyUK (www.currencyuk.co.uk)	1.4430	£15	£3480
Currencies Direct (www.currenciesdirect.com)	1.4433	£15	£3479.28
Barclays Bank (www.barclays.co.uk)	1.4278	£20	£3521.89

(All of those contacted would be able to have the money in the French bank in 2-3 days.)  

As you can see, the two currency house exchange rates and fees were extremely close – with only 72 pence difference in total cost.

The bank, on the other hand had a higher fee, but more importantly was let down by its exchange rate. Note also that the currency house rates are much closer to the rate of 1.455 printed in the Financial Times today.  

So to do the transfer with Currencies Direct would save me £42.61, compared to using Barclays.  

This saving would become even more prominent if the amount transferred were to increase, especially as Currencies Direct provides free transfers on sums over £5000. And though the currency houses are especially good where large sums are concerned, they can offer deals for regular small amounts too such as monthly pension transfers.  

To carry out the transfer the 'spot' deal is a method normally used by banks and currency houses, and means that all required currency is bought outright at the current exchange rate (as shown above).

This method is useful if you need the money straight away, but will not necessarily give you the best exchange rate.  

Currency houses however also offer a 'forward transaction' method.

This is particularly useful if you know you will need to make a purchase in the future, as it allows you to 'fix' your exchange rate up to 24 months before you will need the majority of the money (you must transfer between 5 and 15% immediately).  

So, for example, if you were planning to buy a house abroad next year and believe the exchange rate will drop in the meantime, you could fix your rate now.

On the purchase of a £100,000 house, this could equate to saving thousands of pounds!  

Remember too, that however good a deal you get at 'this end', you may be ripped off by 'receiving fees' when you collect the money at the foreign bank. Banks with overseas branches may be able to reduce these and most of the currency houses have affiliations with companies abroad to waive them – but check before you buy!  

So, if you must transfer money abroad, don't automatically head to your bank. Check out the specialist currency houses too – they could save you a fortune!  

For more on getting cheap cash abroad, see this article. And why not get a better UK account in our online banking centre?