Forex Transaction and Transfer Costs
There are a number of costs and charges - both direct and indirect - that can substantially impact how much money you successfully transfer overseas:
Transfer FeeThis fee varies from provider to provider (usually banks), and is gradually disappearing except in relation to "over the counter" transactions, but can be as much as £35 in the UK and $30+ in Australia. This can be significant in percentage terms if relatively small amounts of money are involved and is a real deterrent to regular transfers. |
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Exchange RateThis is where you can lose substantial amounts of money. New expatriates will often calculate the Australian or other foreign currency value of a transfer by dividing or multiplying the sum by the headline foreign currency (forex) rates appearing on television or newspapers. In fact, the rates quoted are usually the "Interbank rate" - the rate at which international banks will exchange deposits. This can be likened to the “wholesale rate” and banks and other foreign exchange providers build as much as a 2.5% or more margin into their exchange rates when it comes to buying and selling currencies for individual clients.This can subtract thousands of dollars from a large personal transfer and you are advised to shop around for the best rates available. That will not always be a positive experience – many banks are unresponsive when it comes to a request for more competitive forex rates. This may be because the size of any personal transfer pales in comparison with the large sums traded in the forex market on any day, but also because the business generates very substantial margins. If you are shopping around for a rate in the future you will need to talk in terms of the “margin over the interbank rate” that you will be charged. Most bank counter staff will “not have a clue” what you are talking about and will likely refer you to the bank's "rack rate" - which is almost always outrageously uncompetitive. You will first need to establish the correct point of contact in the bank – which is usually the Treasury department - and they will only be interested in providing better rates on very significant transfer amounts. |
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Receiving Bank FeeThis fee usually comes as an unwelcome surprise and typically amounts to about £10 in the UK and about $15 in Australia. Levels vary considerably in other countries. |
Managing this process effectively and efficiently is worthwhile. You will largely find that it is not the banks who are leading edge in this area - in terms of costs, flexibility or use of the internet - but web based based transfer companies such as OFX.
If you are contemplating the transfer of a large sum back to Australia then this area deserves special attention - while you can't control the market forex rate you can make potentially very significant savings on one (partially) "controllable" aspect of the transfer - the margin made by the bank in exchanging the currencies. Do not accept the view, often espoused by bank staff in branches, that rates are not really negotiable for larger transfers - and bear in mind that seemingly small percentage differences in exchange rates on large transfers can translate into thousands of dollars in savings.
If you would like to arrange professional advice please complete the Inquiry form below providing details and you will be contacted promptly. You will receive a fee quotation in advance of any advice or services being provided.
If you would like to arrange professional advice please complete the Inquiry form below providing details and you will be contacted promptly.
