Currency Exchange Guide

Individuals and companies moving large sums of money abroad can save themselves thousands of pounds by avoiding the high street banks' poor foreign exchange rates and service and by using a specialist foreign exchange broker. Thousands of people and thousands of companies use their high-street bank to exchange money between currencies and to send the foreign currency abroad.

The main reasons that individuals are doing this is because they are:

1. Retiring overseas
2. Buying an overseas property
3. Funding their overseas bank account to pay for improvements to their overseas property or to service a mortgage
4. Emigrating
5. Working abroad and want to repatriate their overseas earnings back into sterling

The main reasons that companies are doing this is because they are:

1. Paying overseas suppliers
2. Making an investment abroad
3. Repatriating overseas earnings

There are four main reasons for using a foreign exchange broker:

1. Save money
   

   The main reason for using a foreign exchange broker as opposed to your high street bank is that you can save money. High street banks levy high hidden charges in the foreign exchange rates that they pass on to their customers. They provide foreign exchange rates that are a lot higher (for sterling buyers) or lower (for foreign currency buyers) than the actual 'market rate' and they make their money in the 'spread' between the actual foreign exchange rate and the foreign exchange rate that they pass on to their customers. By way of an example, at 12.30pm on Friday 7 November 2008, the sterling - euro rate was 1.2350. On its website, a high street bank was offering its customers who wanted to buy euros a foreign exchange rate of 1.1980. At the same time, World First was offering its clients a rate of between 1.2215 - 1.2325, depending on the amount that a client was looking to transfer.
   

2. Payment fees
   

   Not only are the foreign exchange rates much better when using a specialist broker but many brokers do not charge payment fees to send the money to an overseas bank account. Most banks charge anything up to £45 to make an overseas payment. On top of that, certain foreign exchange brokers cover all the recipient banking fees. This means that the amount you send from the UK is the same amount that ends up in the bank account you have nominated to send your funds to. This is particularly important in countries such as Spain where the banks can charge 0.5% to receive money. For example, if you were to send €300,000 to Spain, there is a risk that you will be charged €1,500 in Spain just to receive the money. By using a foreign exchange broker who covers these fees automatically, this risk can be nullified.
   

3. Forward contracts
   

   Another important area where foreign exchange brokers differentiate their service from the banks is that they offer individuals and companies the ability to fix a foreign exchange rate in advance using a 'forward contract'. Most high street banks do offer forward contracts to companies but very few offer them to indiviual customers. The advantage of a forward contract is that it enables individuals and companies to fix the sterling cost in advance for an overseas purchase (a property or a consignment of goods for example). This gives both individuals and companies certainty of what something will cost in the future, therefore giving them peace of mind and an ability to plan and budget more accurately.
   

4. Service levels
   

   Most foreign exchange brokers are experts in the field of foreign exchange and international payments as that is all they do. This focus on foreign exchange may not result in a particularly interesting conversation over dinner but it will ensure that you are dealing with seasoned professionals when you have to make an overseas payment!

The foreign exchange brokerage industry is relatively new in the UK although there are more and more providers appearing all the time.

The following table lists the top ten foreign exchange brokers in the UK by pre-tax profit¹:

¹ All data taken from the UK's Companies House website on the 13 May 2008. Measured by pre-tax profit as turnover is not available for all companies.

² It is difficult to tell the exact revenue generated by Travelex from their private and corporate foreign exchange due to the number of entities and business areas they have.

³ TTT also has high-street and airport/station bureaux de change. This profit figure includes that profit.

⁴ Now renamed No1 Currency Ltd.