Currency Exchange For Expats Explained

Estimated reading time: 9 minutes

The cost of changing pounds into foreign currency can make a big difference to expat spending power.

The worst hit is expats on fixed incomes tied to a tight budget as their money coming in stays the same, but their pounds buy less.

And the more expats spend, the wider the gap between the money they need and the money they have.

The problem affects both retired expats and overseas workers as the exchange rate rises and falls, so the chance spending power will drop needs factoring into budgets.

Currency exchange gains and losses are magnified as the pot of money switched between currencies increases.

How Rate Changes Hit The Pound In Your Pocket

Today, £1 buys US$1.26 or €1.10. A week ago, that same Pound bought $1.25 or €1.09.

The change might not seem a lot, but if you are spending £200,000 on buying a house, that’s a difference of €2,000 on the price in just seven days.

The table shows how the Pound has fared against the US dollar and the euro over the past 10 years.

The assumption is an expat changes £1,000 into dollars or euros on the same date every year for a decade.

In July 2014, that £1,000 bought $1,700 – the highest amount – while in July 2019, the same £1,000 bought only $1,250 – the lowest amount. That’s a difference of $450 without accounting for any fees and other transfer costs.

The data shows the importance of getting currency exchange timing right, even though the swings of fortune are unpredictable.

The likelihood is as time goes on, that fistful of dollars shrinks to a handful.

Pound v Dollar and Euro exchange rates 2010-2020

£1,000 buys£1,000 buysRateRateVariantVariant

What Makes Currency Values Change?

An almost endless list of factors impacts the value of the Pound and other currencies.

Much is rumour or speculation.

Changing interest rates probably cause the largest fluctuations, along with other political moves and economic data.

The big influences currently are the presidential election race in the USA, Brexit, and trade with China.

Don’t try and outguess the market

Predicting currency movements is a waste of time.

No one can say with any certainty what the Pound to US dollar exchange rate will be at a specific time.

Exchange Smart Currency analysed exchange rate movements between the Pound and euro for two years. In that time, buyers had 730 days to make an offer on a property.

If the rate against a €200,000 home was not secured, the company calculated in the month between offer and completion of the purchase, buyers had a 40% chance of losing more than £2,000, a 16% chance of losing £6,000 or more and a 3% chance of losing more than £15,000.

What Is A Money Transfer?

A money transfer is a way to convert one currency into another.

As a tourist or frequent traveller, you probably do this with a debit card, credit card or bank account as a straight swap for cash in the hand.

This is OK for changing small amounts as and when needed, but if you are an expat living overseas, you probably want a more robust system for regular transfers of sums exceeding £1,000 a month between banks.

For big ticket purchases, like a home, you need to shop around for the best service, which is unlikely to be a bank.

And if your savvy, you certainly won’t use expensive wire services like MoneyGram or Western Union.

How To Compare Money Transfer Services

Forget the marketing hype each service puts out to try to persuade you to go to them.

The figure that’s important is how many dollars, euros, baht, or pesos you get for your money.

Each money transfer service will have an exchange rate and list of fees that will be charged against the transaction. 

Money transfer services can set their own exchange rate, so when a transfer is advertised as free, you know they are making their money from somewhere and that’s likely to be an exchange rate mark-up.

So, the cost of a money transfer depends on:

  • How much money you are sending – usually the bigger the amount, the cheaper the price
  • The current exchange rate – and this can change throughout the day, so always ask for current figures before committing to the deal
  • Fees the transfer service charges

Ask for a quote and note when it expires.

Go to the bottom line and look for the bang for your buck, which is the number of dollars etc you will end up with after the transfer.

Like building work, always get at least three quotes and compare their bottom lines.

The one that offers the most foreign currency is the one to go for.

Don’t forget to ask each service to quote on the same number of Pounds so you can make a like-for-like comparison.

Beware comparison sites as most do not offer a whole-of-the-market comparison but are tied to several providers who pay for the privilege. 

The responses to your search might not include the best deal on the market because the results are deliberately stacked with more expensive deals.

Where To Find The Best Foreign Currency Exchange Rates

It’s easy to see how just a nudge in the exchange rate can make a big difference to the money in your pocket.

Generally, money transfer specialists are better value than banks, building societies and other outlets. These brokers deal in huge sums of foreign currency every day and must keep their costs and rates competitive to fuel their voracious appetites for business.

Specialists are also more likely to complete speedy transfers and offer fixed rates if you move money between currencies regularly.

They also offer 24/7 access to the service through a mobile app.

Money transfer services based in the UK will be regulated by the Financial Conduct Authority, which means they must keep client money separate from business funds and offer safeguards if the business runs into financial problems.

To keep your money safe, here a few things to consider when hunting for a foreign currency transfer service:

  • There’s a difference between FCA authorised firms and those that say they are FCA registered– authorised is best because the firms must work to the regulator’s rules, while registered firms have much looser regulation
  • Check the firm out online, looking for things like industry award, ease of use and customer service
  • Make sure the web site is secure. If it is, the web address will start with ‘https’
  • Always ask how long the transfer will take and bear this in mind when you compare services

Fixing The Exchange Rate

Exchange rate fixes or ‘forward contracts’ are great for regular large lump sum transfers or one-off transactions, like buying a home.

Money transfer specialists will offer forward contracts that fix the future rate at today’s level until a specific date – called the maturity date- generally any time up to a year ahead. 

They my also agree a time option, which is like a forward contract. Instead of setting your transfer date, the option is to take the money when you want before the contract matures.

If you are planning to buy foreign property or want to regularly transfer savings or pension cash, it’s a good idea to speak to several money transfer specialists and ask them to quote their best deals.

Finding The Best Foreign Exchange Deal

The cheapest deal might not be the best.

You need to think about the why, where, what and when as you pore over the quotes.

For example, one service may be quick but expensive, while you may wait longer for your money with another service but end up with more in your pocket.

If you have a cash reserve in a local bank but want to switch a regular top-up to cover the bills, you need to think about the when, which is why a fixed forward contract or time option may come in useful.

Currency Exchange For Expats FAQ

The choice of banks and money transfer firms clamouring to move you cash around the world is bewildering.

With so many firms jostling for your business, it’s sometimes difficult to sort out the best deal for you.

With that in mind, here are the answers to the most asked questions about currency exchange for expats.

How much money can you move from the UK?

There’s no official limit, but money transfer specialists may impose their own caps on how much you can send in a single transaction. It’s also worth checking if the receiving bank or local rules where you live affect sizeable transfers.

Do foreign exchange firms cover all currencies?

No. Some countries have restrictions on taking money in and out, making their currencies only available within their borders. Some firms will also only deal with popular currencies, leaving the more exotic transfers to niche specialists.

However, the good news is many money transfer firms will cover a range of 20 to 30 currencies that will cover most needs.

If you can’t source the currency transfer you need, think about moving money into the country in Pounds or dollars and exchanging to the local currency through your bank.

Are money transfer firms safe to use?

If the firm is authorised by the Financial Conduct Authority in the UK, your money should be safe if the business is in difficulty or goes to the wall.

You may also have protection from the financial ombudsman or the Financial Services Compensation Service (FSCS).

An FCA registered firm doesn’t offer the same depth of cover as an authorised firm.

Can I make the transfer online?

Money transfer firms do not require you to visit their offices to do the deal – business is conducted online through a mobile or tablet app or a laptop.

Do I need to open an account at a local bank?

Money transfer firms move large amounts of cash between banks, so you need a bank holding your money in one currency – typically a UK bank – and a foreign bank to receive the converted money.

How quickly can I make a currency exchange?

This depends on the money transfer service, the currency you want to change and how much you want to pay.

Some can transmit the cash instantly or within 24 hours, but less popular currencies may take a little longer. Some may charge a fee for an express service. While a bank transfer could take three to five days, most money transfers are much quicker.

Is there a foreign exchange comparison site?

Several comparison and money transfer sites quote a range of rates, but there is no independent website with foreign currency news, advice, and rate updates from across the market.

How many foreign currencies are there?

About 152 currencies are circulated worldwide, ranging from the Arab Emirates Dirham to the Zambian kwacha. Most money transfer specialists handle around 30 currencies.

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