Get the most from currency exchange

IN THE past two years, unprecedented volatility in the currency markets has seen the value of sterling fluctuate by over 30% against the euro.

It is therefore especially important that when you transfer money from the UK to France you are aware of the costs involved and the different options available.

When moving money, costs fall into two main categories: i) charges and ii) the exchange rate. Knowing both costs is crucial to getting the best deal.

Charges: A variety of different charges can apply both for the sender and the recipient. Some providers levy several small ones so it is not immediately obious how much the transfer will cost.

Exchange rates: The "hidden" charge. Some companies claim to be commission-free then load the exchange rate so you get fewer euros for your pound.

The ultimate question is: "How many euros will I get for my pounds, after all the charges?" Beyond that a number of practical considerations come into play such as the speed of the service, how easy and convenient it is, whether the method is better for regular payments or one-offs and whether any special safeguards for your money are offered or not.

Using your UK bank

Assuming you have a UK bank account, you can arrange currency transfers to France via them, just as you would go to your French bank to move euros to the UK. The majority of people - about 70% - go for this option when making a transfer.

Depending on the bank's policies you can arrange it either by phone, by going into a branch or, if you are in France, via your French bank which will receive the money. Barclays, for example, will only allow you to transfer up to £5,000 by phone. British banks do not usually allow international transfers using internet banking.

The bank sending the money applies their own exchange rate, at a less favourable one than the bank to bank rate (which is the one you will usually see quoted in the press, for example). Apart from this, depending on the bank, they may levy a commission fee (up to 2% of the amount your transferring) and/or transfer charges (often £25 for each transfer).

For example, a spokeswoman for Barclays in Britain said that any transfer came with a flat £25 fee, but they did not charge a separate commission. Depending on where you are sending the money there can also be up to another half a per cent of bank receiving fees, charged by the bank who gets the money (0.4% on average).

With pensions, one possibility to minimise costs is to have money paid each month directly into your French account from the pension provider. In this case the currency exchange takes place in the banking system without you having to arrange it directly which may avoid transfer fees or commissions. However, the exchange rate may not be the most advantageous available.

Using a currency specialist

Using one of these firms is a cost-effective alternative to bank transfers. The advantages may include cheaper transfers, the possibility of arranging transfers over the internet and the chance to set up regular payments schemes, sometimes with "locked in", agreed exchange rates.

They are UK-based although some may affiliate with French-based firms which offer the same services in partnership with the British-based specialist.

People will generally think of using one of these firms when they want to transfer larger amounts, said Mark Bodega, a director of HiFX, one of the larger currency specialists. They can help with transfers in both directions (ie. France to UK as well as UK to France).

"Traditionally people will use a firm like ours on occasions like buying a property in France or when transferring larger sums of £5,000 or more," he said.

While some firms do not allow small transfers, policies vary, he added.

HiFX has an online service which allows people to transfer from £250 - £50,000 and offers better exchange rates for the transfer of the smaller sums than if you were to phone up.

Mr Bodega said: "People use currency transfer companies for a variety of reasons. They may use them for regular payments, such as a monthly mortgage payment, transferring pensions from the UK to France, repatriating rental income or being paid a salary in the UK and transferring that to France.

"Ad hoc payments might include topping up a French bank account, maintenance money to cover bills for a property in France etc."

To make use of a currency specialist you need to have a UK bank account as the system relates to bank to bank transfers. The customer gives the currency specialist permission to make the transfer for them, from one bank to the other one.

They can also transfer from your UK bank account to other third parties as long as they have a destination bank account number.

There are no charges made by most of the larger currency specialists. There are no commission charges, transfer fees or bank receiving fees because the currency broker - who acts as a middleman - pays them for you. The firm is able to make money based on the fact they receive it from the UK bank at a favourable bank to bank conversion rate and then pass it to their customer applying one that is less advantageous.

However, according to HiFX, the rates are still typically better than those offered by banks, and this is despite the fact that banks also levy other charges on top.

An investigation by the Sunday Times in February 2009 showed on average high street banks were charging up to 4% more to exchange money - so if you were changing £100,000 into euros, you might have paid about £4,000 more than if you used a currency specialist.

Mr Bodega said: "The banks' spread on the exchange rate - ie. the difference between the price they buy currency at compared to what they sell it to you at - is so wide we can afford to offer a better exchange rate and include all the fees into that, because currency is all we do. We don't avoid those charges - we have to pay them."

Where a fixed rate has not been agreed, currency firms calculate their exchange rates with reference to the actual interbank rate at the time, he said, as opposed the banks’ system of setting a rate at the start of each day.

He said this helped them set them more favourable rates because they do not have to factor in possible fluctuations.

Rudolf Kilchherr of currency firm Moneycorp said: "The key thing about firms like us is that currency transfer is our core business - it's the only thing we do and we offer a bigger range of tools than the banks - for example we can follow the rates and can wait to do the transfer when they reach a certain level."

A trader from another large firm, Baydonhill FX, Regis Grant, said: "A broker can explain how the currency markets operate or keep you informed of major market movements to help you decide if you should fix a rate for a future payment should the rate move in your favour."

Find out more

The Connexion publishes a €5 helpguide on exchanging money which expands on the information in this article. We explain:

- how to choose a currency exchange provider
- how to get as much of your UK pension to France
- ways of making ad hoc payments
- transferring money to buy a house
- using British bank cards in France
- financial regulation: making sure your money is in safe hands

Click here to download our helpguide

Other related stories:
Money-saving tips with the low pound
Avoid fees on UK money transfer
Pensions: who pays for falling pound?