Foreign Exchange Basics
When setting up life in a new country there are many factors to consider. One factor which people seldom put a lot of thought into is how to maximise on the transfer of their funds abroad.
There are a number of variables in this process and it is important to consider all of the following:
Is it a good time to transact? Looking at the graph below, showing Australian dollars (AUD) to Pounds Sterling (GBP), it easy to see that the exchange rate can move significantly over time. Sometimes volatility is low, such as the period from March 2011 to March 2013. But other times it moves quickly - for example, transacting in Sept 2015 would have secured you a rate over 2.16, whereas just 6 months later (March 2016), you would get less than 1.90.
If you were transferring £100,000 for example, the difference would be around $28,000, enough to buy a pretty decent car when you arrive in Australia !
Although nobody can tell you exactly where the exchange rate is going, it is worth chatting to the experts about when may be a good time to transact and what is a realistic figure to aim for.
Forward Exchange Contracts
Bear in mind that you can place a Forward Exchange Contract to secure a favourable rate even if you do not currently have all your funds ready to transfer. Depending on circumstances, you may be able to pay a deposit now and pay the remaining amount at a future date (eg. following the sale of your property).
A limit order can be put in place with your currency broker - you set a target rate and the amount of currency to buy at this rate. You do not have to continually monitor the rate - if and when the target rate is hit, your broker will contact you to complete the trade.
The rates you normally see quoted in the newspaper or on currency websites are the inter-bank rates, which are the rates used by banks and other financial institutions when buying/selling very large amounts of currency.
Retail Rates and Margin
Retail exchange rates or customer rates are always less than the inter-bank rates. The difference is the margin, which is the profit earned by the company performing the trade - they are in business after all !
How close your rate is to the interbank rate will depend on several factors:
- The size of the transaction. Generally speaking, the larger the sum you are converting, the nearer you can expect to get to the interbank rate. If you like, you have more "buying power".
- The "standard" margin for that company In general, companies like OFX who deal ONLY in currency transfers operate on much lower margins than the banks. More on that here
In addition to the profit made on margin, a bank or currency transfer company may also charge a transfer fee. Another fee may also be charged by the recipient bank (ie. the Australian bank that holds your account) and in some cases there are also fees charged by intermediaries as the funds are transferred. Fees are not always revealed unless you ask the question. Make sure you ask about transfer fees and commissions as well as receiving and intermediary bank fees.
Security of funds
Clearly, if you are transferring your life savings to Australia, you want to be very sure that the company doing the transaction is legitimate, registered and regulated and can guarantee the safety of your money.
To speak to one of the OFX accredited dealers about your foreign exchange requirements call 1300 300 424 in Australia (0207 614 4194 in the UK; 1-888-288-7354 in the US, 1-800-680-0750 in Canada or 0800 161 868 in NZ) or go online.
Registering with OFX is FREE and you can view their live dealing rates immediately.
As a member of Aussiemove you will receive your first two transactions fee FREE.