If you need to send money overseas, you may have checked out how much it would cost to use the services provided by your local high street bank.
If so, you will have seen that you could be charged as much as £40 just for the privilege of sending money to another country.
This might sound like a reasonable charge…until you discover that by using a currency broker you might have been able to get it for free!
We run through how a currency broker works and the charges which could apply if you used their services.
What is a currency broker?
A currency broker is a type of company which specialises in transactions carried out in different currencies. This could include speculating on the international currency exchange or sending money to countries overseas either as a one-off or as a regular series of transactions.
Most brokers work entirely online which means you won’t have a local branch to pop into, unlike many banks. However, the vast majority offer an excellent telephone service which is available for longer hours than the counter of your nearest bank!
Whilst banks provide foreign currency services as just one of their range of available products, currency brokers provide nothing else. This may initially sound like a drawback but what it means is that the staff are highly trained and experienced currency experts that can provide in-depth advice and information on any aspect of the process.
Exchange rates – no commission?
When you exchange money, regardless of who you use, some kind of profit will be made on the transaction. This applies even if their rates proclaim ‘no commission payable’. It doesn’t matter whether you are looking to get your hands on some cash for a holiday or whether you are sending a large sum overseas, either way you will get charged a premium for using the service.
Some providers charge commission and if this is the case, it’s very easy to work out how much you are paying in charges. However, even if they do adopt this approach, you will still be handing over extra money because the exchange rate you are offered will not be the rate they deal in.
Large financial institutions switch currencies at what is known as the ‘interbank rate’. This exchange rate is not available commercially and is not offered to any customer. The difference between the interbank price and the rate you are offered represents a profit to the provider. In this way, whether you pay commission or not, you will still be paying a fee, albeit less transparent.
Currency brokers cannot offer you the interbank rate either but they typically offer a far more competitive rate than that advertised by high street banks. This can be as much as 4% – a very substantial saving if you are sending a large amount of money overseas, such as if you are purchasing a second home.
Currency brokers are able to be so much more competitive because of the volumes they carry out in the market every day; this enables them to reduce their profit margins on each transaction accordingly.
But it isn’t just the exchange rates which you need to take a close look at; banks will typically charge up to £40 for sending the payment overseas. Depending on the amount of money you are dealing with, you could complete the same transaction with a broker for no charge whatsoever.
The exact practices vary from broker to broker but as a general rule, any transactions of more than a certain amount (usually a few thousand pounds) will be performed free of charge. Although they charge for smaller transactions, it still works out far cheaper than the bank with the typical fee around £10.
However, in some cases it is possible to allow even small payments to be processed free of charge. Any money being sent to a qualifying country in Europe can be made at no cost under the SEPA system.
Depending on where you are sending the money, you could also find more of your money eaten up by charges from the bank in the country you are sending the cash to. Your currency broker might be able to offer a way round this by suggesting alternate means of carrying out the transaction.
If you need to send money overseas for any reason, you shouldn’t have to resign yourself to losing a large chunk of your cash due to charges and fees. By using a broker you will not only have access to free specialist advice, you could also find that you benefit from better exchange rates and also have to pay either none or minimal charges.